Good morning,

The action by the UK government to unilaterally extend the grace period in Northern Ireland has been met with agreement by European nations to pursue legal action.  Brussels will take a two-pronged approach in response to the UK extending the period in which border checks are significantly lighter, first with a response through the courts, which could see the UK in front of the ECJ and second through political channels, saying that the UK has not acted in good faith, which means Westminster and Brussels could find themselves in front of an independent arbitration panel.  When the deal was rushed through in December, both sides acknowledged that the Q1 deadline was likely unrealistic and would need to be extended, but it’s unlikely to get resolved through the courts over the next three weeks, so perhaps it’s time to pick up the phone.

On top of this, there is still a bit of a war of words between the UK and EU about vaccine export controls.  This probably isn’t helping matters and nor is it getting anyone anywhere.  What we are seeing though is a continued correlation between the widening gap of vaccinations between the UK and EU and the increasing value of the Pound versus the Euro.  We’re not sure whether this has the legs to continue, though the UK is likely to accelerate its rollout from next week, with first doses administered set to average 500k a day as more supplies are coming online.

In other currency news, the Swiss National Bank have said that over the past year they’d spent more than100bn francs intervening in the FX market last year, just to try and keep the frac’s appreciation in check – the safe haven currency is always a go to in times of uncertainty and last year was certainly one of those – though they have said that they’d be prepared to go further if needs be and won’t be relaxing anything anytime soon despite things starting to turn around.  As well as market interventions, the SNB has the lowest interest rate in the world at -0.75%.

In the US yesterday was a stellar day for stock markets, with the Nasdaq up 4% by the close of play.  The move was a reaction to Monday’s sell-off, which it appears investors took as a buying opportunity.  Tesla is still behaving like a penny share, despite being in the S&P 500, with their stock up 20% .  The rally might also have been driven a little higher with investors having to cover their short positions, so might not be a long term turnaround in fortunes (in fact, it’s been a very slow session in Asia overnight, so it doesn’t seem like this euphoria is contagious).  The difficulty for investors now is finding the right time to switch out of stocks that have faired very well during a pandemic and into those that perform well in more normal times.  Too early and you risk missing out on more upside in pandemic stocks, too late and those pandemic stocks are lower and your everyday stocks are higher.

Joe Biden has started to assemble his Federal Trade Commission and is looking to appoint a couple of pretty progressive individuals to its leadership team. The move has been signposted as a ‘warning to big tech’ about what could be to come.  Both picks are professors at Columbia law school and have been advocates for tighter regulation of tech companies, as well as broader application of antitrust laws.  The Bloomberg article says they are part of a group of antitrust thinkers who argue that the current playbook has fallen short and want to return antitrust policy to its early 20th century roots – when regulators went after monopolies in railroads and oil. It is a long article, but if you do get a chance to have a read it is worth it, given how much influence big tech has over our lives.

There’s an interesting FT article which talks about the US possibly losing its edge in the Indo-Pacific region.  It’s a warning from the top admiral in the region, who says of China that he “cannot for the life of me understand some of the capabilities in the field, unless it is an aggressive posture”.  China is going to have three more aircraft carriers built and deployed to the region by 2025 and they’re increasing defence expenditure by almost 7% this year – though even with that increase they’ll still spend less than half of what the US does.  The admiral is urging a re-think of the US policy of strategic ambiguity in the region, for fear they’ll be caught napping.

Looking to today:  The data to watch are inflation readings from February.  On the surface that sounds incredibly dull, but given the market’s sensitivity of late and this being a very up to date reading, we could well see some activity as a result.  The market is expecting a month on month increase of 0.4%, so anything significantly higher than that could spell a bit of trouble for risk appetite.

Be well.

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