Good morning,

The vote for Trump’s impeachment passed the House yesterday, which now sets up a trial in the Senate.  The trial can’t start until at least the 19th January and though the market didn’t react to last night’s events, it may start to take a dislike to those proceedings, as they risk getting in the way of the usual undertakings of a new administration – such as confirming key personnel and delivering a multi trillion dollar stimulus package.  The proceedings also risk hardening party lines, which is something that looks to have thawed in the last week, as some Republicans finally got round to criticising someone that some have strongly disagreed with for the last four years.  The latter would be a terrible outcome for all of this, as the last thing the US needs is to further crystalise political divide.

Joe Biden’s stimulus plan will be unveiled today and CNN reported yesterday that he’s aiming for $2 trillion.  That’s larger than the market expectation and resulted in ten year yields spiking higher – as we said earlier in the week, this is the barometer to watch, because there does come a tipping point when bonds become attractive to the detriment of equities. The Dollar also got a bit of a lift on the news, as more stimulus might mean more inflation and with inflation comes interest rate rises, which would bring a bigger yield advantage for the currency, relative to others.  Notably the Fed are trying to quieten any notion of interest rate rises or stimulus tapering, saying that it’s a long way down the line.  What this all tees us up for is a pretty busy session later today once those plans get announced and those that have bought the rumour can then sell the fact.

Sticking with dysfunctional politics: Italy is back in a crisis situation as Matteo Renzi, former PM and leader of the small opposition party that makes up the ruling coalition decided to pull their support of government. This leaves prime minister Giuseppe Conte in a difficult situation, as he’ll have to go and do a deal with another party for support if he’s to keep a working majority and a functioning government.  There are a few smaller parties that he can turn to, or he can try and lure away members of Silvio Berlusconi’s Forza Italia party – or get support from Berlusconi and then have a comfortable working majority, albeit it a cost that’s possibly too high for Conte to pay.  If Mr Conte can’t get this done then he’s going to have to resign and that leaves a government in an even greater crisis. One solution could possibly that Mario Draghi, former head of the European Central Bank, could step in. He’s shown no appetite for doing so, but it’s a hope that many are clinging to. Then we might see another technocrat government of sorts whilst the pandemic plays out. A government in crisis during such a difficult time is not what any voter wants to see and even less appealing is another general election, so all options are on the table before we get there.

A candid interview from Michel Barnier, led him to say of the port disruptions that they may be here to stay, as “things have changed for good”. He said there were going to be teething problems and they will be overcome but fundamentally “there are mechanical, obvious, inevitable consequences when you leave the single market and that’s what the British wished to do”. He also shot a warning to the UK government over alignment of standards, as last week the government decided to reintroduce a banned pesticide into use in the UK to treat sugar-beet seed. The emergency authorisation of the neonicotinoid is only for four months and it hopes to see off a virus that could damage this year’s crop, but Barnier said that such a move not only plays to environmental and health standards deviation, but also to those of government support, competition and competitiveness.

Today we’re looking at a reasonably uninteresting data sheet, alongside a couple of Fed speakers who no doubt will be trying to convince markets that rates will be staying low forever. The big one is going to be Biden’s bailout package and we’d expect some market reaction over that.

Be well.


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