Good morning,

European headlines are a slight cause for concern this morning:  Angela Merkel and Emmanuel Macron are talking to Valdmir Putin about possible supplies of the Sputnik vaccine, once it gets regulatory approval from the EMA. Germany suspended the use of AstraZeneca’s vaccine in the under 60’s yesterday after it was linked to blood clots on the brain of 31 people, of whom 9 died. Canada has also reduced their AZ rollout, banning it in under 55’s.

The other European headline (and cause for concern) is that whilst negotiations are underway on vaccines, Russian troops are building up on the Ukrainian border and the violence in the region is escalating.  The violence is between Ukrainian forces and separatists backed by Russia, but to think that Moscow doesn’t have influence there would be naïve. The US’s European military command has increased it’s alert level in the area from ‘possible crisis’ to ‘potential imminent crisis’ and yesterday four Ukrainian soldiers were killed.  The New York Times has the story and highlights that this could be a test of the new President rather than a specific offensive on Ukraine.

The FT is reporting that Liz Truss is trying to reinvigorate the World Trade Organisation and drag it out of the 1990’s.  The WTO has been a lame duck since the US-China trade war, but the UK’s International trade secretary wants it to modernize, become fit for purpose and, importantly, stop treating China as a ‘developing nation’.  Ms Truss argues that when the WTO was created the Chinese economy was just 10% the size of America’s, whereas now it’s the second largest in the world with GDP at about two thirds the size of the US – so she has a point!  Her hope is that an effective WTO would facilitate more global trade, to which the UK can benefit, rather than waiting on bilateral trade deals that can take years to establish.  Change might be easier said than done though, as it’s a very large negotiating table with a lot of different interests sat around it.

In the US:  Joe Biden is set to unveil his economic recovery plan today.  The “American jobs Plan” is phase one of his two part “Build Back Better” strategy and is is reported to be $2trillion spent over eight years across the transport network, broadband infrastructure, water systems and the energy network – which could include incentives to clean up abandoned coal mines, which would be a vote winner for states that have seen that part of their economy lost and would welcome the cash.  We’ll also expect to hear more about support for onshoring certain manufacturing sectors, such as semi-conductors, that are growth areas and also strategically important.  The flip side of spending money is that you have to fund it.  As such we’re expecting to see corporation tax rates rise, with a push for a global minimum threshold amongst the OECD, which would stop companies basing themselves in the most favourable jurisdiction. Perhaps more important than the announcement – which a you can see is already a pretty well-known subject – will be the comments and the pushback that the administration gets, from both Republicans and Democrats, to see what kind of a mountain he has to climb to get this done.

Elsewhere, the Wall Street Journal talks about the knock-on effects of having the Suez Canal blocked for a week by the Ever Given:  They warn that with the backlog now being cleared, traffic heading into ports will be much higher as ships will all arrive at once.  This is going to delay offloading and also strain the turnaround times of reloading and getting ships back to Asia, which in turn risks them coming back emptier and then exacerbating the container crisis.  It’s a good short read and another reminder of just how strained supply chains are at the moment.

Looking to today:  The vast majority of portfolio rebalancing will be done by now and our expectation would be for a quiet day. However, we are going to get US ADP employment numbers out this afternoon and with most people on holiday for Friday’s non-farm payrolls, today’s precursor number might be more of a market event than usual. Additionally, European inflation data for this month will be of interest to a lot of people when that prints at 10am.  Joe Biden is set to deliver his plan at 4.20 New York time.

Be well.

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