Good Morning,

UK consumer confidence has hit its highest peak since the pandemic began, according to data out yesterday.  The British consumer has made up for lost time and managed to get spending back up above pre-pandemic levels, having been let out of the starting gates for non-essential retail and outdoor drinking three weeks ago.  The data also showed more people expecting their personal finances to improve over the next year, rather than deteriorate,  which bodes well for a continued resurgence.  Rishi Sunak thinks that individuals have managed to save £140bn and are now ready to spend, whilst companies have managed to add at least £100bn to balance sheets over the period that they too will now be looking to deploy.

Such a return to form could be enough for Rishi Sunak to avoid implementing more tax hikes than those that he outlined in March,  as treasury coffers should start to swell with all of this economic activity.  There was thinking that he could ‘do a Biden’ and restructure capital gains thresholds in a bid to increase the tax take,  but given the rebound we’re seeing,  it is likely he can “get debt on a stable to declining basis broadly with the measures that we’ve already announced”.  Forecasts for our return to pre-pandemic growth levels have been brought forward and economists now think we might be there as early as Q1 next year.

Still,  it’s not all going swimmingly:  France has threatened to cut off Jersey’s electricity supply over a fishing row. The UK is apparently using red tape to limit access of French vessels to the waters off Jersey,  which goes against the access that was agreed in the Brexit deal.  Obviously things have got very hot very quickly and we’d expect this to be dialled back down almost as fast,  but it’s another reason for distrust around protocol implementations and possibly another hurdle for our senior negotiators to overcome as they get into making daily life in Northern Ireland a little smoother.

Elsewhere in Europe:  Madrid has seen a move to the right,  in regional elections that saw the Popular Party unseating the incumbent socialist coalition. Turnout for the voting was high and was seen as a stamp of approval for Madrid’s approach to the pandemic,  which was to keep things open and life far closer to normal than elsewhere in the country. Though the party hasn’t got enough for its own majority,  it will easily be able to form a coalition government with the further right  Vox party and the result could have wider reaching implications across the country and possibly beyond, if it can be used as a bellwether for other European elections where the right is growing in influence,  or has been offering an alternative approach to managing the pandemic.

Across the Pond:  Janet Yellen was reminded just how sensitive the market can be to policy makers uttering the words ‘rate’ and ‘rises’. Ms Yellen had to row back on comments she made that “interest rates will have to rise somewhat to make sure that our economy doesn’t overheat”. Ms Yellen’s comments upset  Wall Street to the point that yesterday she said that inflation is going to be transitory and not something that would become a problem. The quick retracement by the head of the US Treasury should be equal parts welcome and concerning – given the infancy of the recovery,  we understand not wanting to rock the boat and market valuations built on sand are at risk of a big correction, but at some point rates are going to have to rise and markets will have to accept that fact,  so why stop ripping off the plaster half way through? – a debate for a different time.

Inflation is definitely making itself known in a couple of commodities:  Corn prices have risen by 142% in the past 12 months,  to hit an eight year high.  Demand increases and crop failures are causing the price rises and there is concern that this continues to move higher.  There’s an interesting  Business Insider article on the issue, with a final comment on it pointing to a CNBC interview with Mohamed El-Erian where he disagrees with the Fed and thinks inflation is here to stay and the price indicators pointing to that are many.

Another area where costs are soaring is shipping and hiring a capsize bulk carrier – the largest dry cargo ships – hit an all time high this week of $40,000 per day as demand for iron ore in china seems to be relentless.  There’s an interesting article in Motley Fool about why these price rises,  which are normally bad for miners,  are good news for Australian miners – because the cost of shipping is now such a factor in the overall cost of the commodity that it’s now cheaper to buy from Australia and ship just fifteen hundred miles to China than buy cheaper from Brazil and have to ship 4,000 miles, which would cost around $400k more per cargo.  The shipping price surge is up there with a Bitcoin rally at this point,  having grown from just $5,700 in Mid-February and is well clear of its previous highs of $30,000 a day,  which it reached back in February.

Looking to today:  PMI data for the service sector in both Europe and the big mover.  We’ve also got ADP employment out of the US and number of Fed speakers taking to the wires throughout the afternoon.

Be well.


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