Good morning,

Sterling caught a tailwind last night and headed higher, as the EU watered down their threats to block vaccine exports. Following a meeting of European leaders a text was released that emphasised the importance of “global value chains” and urged drug manufacturers to “ensure predictability of their vaccine production and respect contractual delivery deadlines”. Whether this puts the argument to bed or not we don’t know, but for now the market is happy enough that things haven’t gone further than a war of words and that the UK’s vaccine rollout isn’t going to be further hampered.  The two sides to the outcome were clear in the market, with the Euro losing ground to other currencies as this outcome hasn’t done anything to speed up their rollout.  The ECB are now talking up the prospect of a second half economic rebound, knowing that the second quarter of this year isn’t going to see material changes.

The ECB will look to support the bloc for as long as necessary and may further tweak their bond buying programme:  Recently they said that they would front load the programme by spending more money on asset purchases in the near term and less further down the line, so they would have more price impact without going over budget.  Now they’ve hinted that instead of buying specific quotas of bonds and keeping the whole yield curve supressed, they’ll focus on buying enough to move the pricing of certain bonds to more favourable levels in a bid to make financing conditions easier. This apparently isn’t yield curve control, because financing conditions aren’t only determined by bond yields and as economic conditions improve yields may rise and access to credit might still be easier and cheaper, so the ECB will only do what they think is necessary to ensure that the market is optimised for businesses and governments to go and access debt.  But it still sounds to us like yield curve control.

Mario Draghi will no doubt be grateful for the ECB’s efforts as he will need to go and borrow more to fund the continued financial support whilst the country remains under restrictions.  The monthly cost is said to be around €15bn and though he just secured a €32bn pandemic relief package, the treasury’s coffers are going to be running close to empty towards the middle of the second quarter.  He needs to get parliamentary approval for such borrowing and though he’s likely to get it, he still needs to work out how much he needs and just how he’s going to pay for this down the line.  He’s urged the EU to rethink their fiscal framework,  and with debt to GDP second only to Greece’s, he’s arguably got the hardest job of them all in trying to settle the bill for covid once the pandemic is over.

Joe Biden has revised his vaccine target from 100 million shots in his first 100 days to 200 million.  The President’s more ambitious targets, along with his stimulus efforts, are fuelling optimism amongst analysts that GDP growth in the country will be north of 6% this year.  His approval rating after two months in office is at 55%, which compares pretty favourably to Trump’s, who was at just 37% after the first couple of months in charge ( Biden:  “thanks America, your cheque’s in the post. Literally).  Biden gave his first press conference yesterday and there seems to be a new crisis in town, which is the number of migrants crossing from the southern border and is actually something that’s been bothering presidents for decades.  As difficult a problem as this is for the administration, Biden will no doubt welcome the fact that the media must think he’s got covid in hand and that it’s onto the next challenge – which, according to NBC, he has tasked Kamala Harris with solving.

Stock markets took a little bit of a risk-on attitude as the day wore on yesterday, no doubt helped by analysts upgrading their US GDP growth forecasts.  The move back into the market was slower than the sell-off, but futures markets look like we might see another rise today to close out the week on a positive note.  From a data perspective we’ve already seen UK retail sales numbers for February stage a bit of a comeback from January’s drop.  This is being put down to people getting back into DIY and buying outdoor products ahead of another spring and summer of garden drinking.  It’s not all good news though, as the British Retail Consortium have said that over three lockdowns UK shops have lost £27bn in sales and 67,000 retail jobs have been lost.

There isn’t much more in the way of data out for today, so we’d hope people decide to stay with the positive momentum – that could be added to if they can get the Suez canal unblocked and the key trade route open – ships that are joining the queue are already deciding to take the 3,500 mile detour round the horn of Africa, so if this continues supply chains will be hurt, and they’re really not in that great shape at the moment anyway.

Have a great weekend.

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