Good morning,
Control of the Senate is now a two horse race, after one of the Georgia run-offs has been claimed by Democrat Rev. Raphael Warnock. The vote count on the second run-off is now at about 98% and as we saw from the presidential elections, the postal ballots – and therefore later counted entries – are seeming to favour Democrats. However, the margin is still within 0.5% and therefore we could see a recount if the winning margin stays below half a percent – frustratingly voting has stopped for the night in some counties, so we probably won’t get the second outcome until at least lunchtime UK time today.
Market movements have actually been pretty limited on the news. Equities have moved a little lower (concern over Democratic tax rises) bond yields have moved higher (because more stimulus could lead to inflation) but in the FX market, the Dollar has remained largely unchanged.
In UK markets; lockdown seems not to have impacted proceedings too much. The FTSE was higher over the course of the day yesterday and the Pound hasn’t really fallen any further from it’s initial blip when it was announced that Boris would be addressing the nation on Monday. Boris’ address was followed up by the Chancellor yesterday, who has pledged £4.6bn in further funding, predominantly aimed at retail and hospitality. The money will largely be paid as one off grants of up to £9k to businesses, with some residual funds flowing via local authorities to businesses who may not qualify for the grants. There are calls for him to do more, but it’s likely that we’ll have to wait until the budget in March for an announcement of further measures – at which point he’d have time to extend the rates holiday and VAT reduction if deemed necessary, as well as a possible extension to the stamp duty holiday? The Telegraph is reporting that government borrowing could now hit £450bn this year and that next year could require a further £250bn of debt to be issued. Lucky they found that magic money tree.
MP’s are set to vote on the lockdown today and the bill will contain the usual ‘sunset clause’ as to when it will expire. This is an interesting point though, as Boris has talked about a review in Mid-February, yet the sunset date is the 31st March. They have restated commitment to having 13 million people vaccinated by the middle of February, despite Matt Hancock saying that is the ‘best case scenario’. The UK is doing reasonably well in the roll out of the vaccine, currently sitting at 1.46 people per 100 having been vaccinated. For context, Germany is at 0.4 people and Israel is streaks ahead of everyone at about 16 people per 100 – and at their current run rate the majority of adults will be vaccinated by March. Here’s the FT with how they’re doing it.
Back to the US: Today’s a big day for vice president Mike Pence, as he presides over the joint congressional session to ratify Joe Biden’s incoming presidency. This formality is being challenged not only by a group of Republican senators, led by Ted Cruz, who want to try and overturn it (they can’t) but also by Trump who is exerting pressure on Mike Pence to use ‘his power’ not to declare Biden the winner. Mike Pence’s role in this would usually be ceremonial, but Trump has been taking some last ditch advice from lawyers that says the VP does have the power to question the election results and therefore push the final decision to the Supreme Court. This is something that countless other lawyers have said isn’t the case, but if Mike Pence were to take this path then it’s going to raise a good deal of uncertainty and tensions just two weeks before Biden is due to take office. We don’t expect this to happen, but who knows.
Today’s data are another backward looking affair, with service sector PMI’s from December being reported from all four corners of the globe. Sterling might show some sensitivity to the numbers, given that this sector makes up 80% of our economy, but we’re not overly sure, particularly given the market’s lacklustre start to FX positioning. Later in the day we should get some more on the Georgia election and also the Federal Reserve meeting minutes are due out this evening, which might create some opportunity.
Be well.
