Good morning,
It’s taken month end repositioning to stem Sterling’s rise and the turnaround in the last few sessions has been relatively sharp. The move comes as little surprise, given the march higher that the Pound has had over the course of February – perhaps the larger surprise was the fact that the headwinds in the economy weren’t enough to hold the Pound back – but now the question is whether Sterling can reset itself and go again next month (and that’s not a question we’re going to answer!)
UK businesses have registered their first positive reading on the Lloyds Business Barometer since March last year. The big uptick in confidence in this months poll takes the level to +2%, which though not the most bullish of readings is a big improvement on the past ten months and hopefully speaks to the sort of bounce back that we’re likely to have. That bounce back might be accelerated a little if reports are to be believed that the City could be granted partial access to the EU’s financial markets. It’s unclear what areas this partial access would extend to and on what sort of timeframe it might be permitted, but giving UK firms limited passporting access into the EU would certainly allow for some increases in business, whilst also stemming further losses. Since Brexit, Amsterdam has become Europe’s largest share trading hub, knocking London off the top spot and out of contention completely because of the change in rules. The one carve out that we currently have is that derivatives clearing is allowed to remain in London until next year and getting a long term pledge on this would also be welcome. The Telegraph has some more on this.
On the mainland, vaccination passports are going to be in play by the summer, according to Angela Merkel. The digital vaccination certificate “will make travelling within the EU possible and could pave the way for further travel from third countries into the EU”. Boris and co. are reviewing their initial stance on not wanting a vaccine passport and it may be that adopting the EU’s method is the most practical approach, particularly if it is the one that will allow hundreds of thousands of Brits to go away on European holidays this year. Angela Merkel’s comments came following a virtual summit to discuss the pandemic response across the bloc, where some leaders are still pushing for export controls on vaccine doses from companies who have fallen short of their contracted agreements with the EU. Mario Draghi is one of them and isn’t buying Ursula von der Leyen’s argument that the catch up in supply in Q2 and Q3 will definitively take place – he’s also saying that there should be a prioritisation of everyone in the bloc having the first dose, which is a hint that he may be moving in the UK’s direction of gwanting to give everyone some level of protection ahead of going for round two.
In the US: Johnson and Johnson’s single shot vaccine is close to FDA approval after regulators said that it was safe. The efficacy from trials shows its 85% effective against serious illness, but that reduces to 66% when you factor in moderate illness. The jab, much like AstraZeneca’s, is far cheaper to manufacture than Pfizer or Moderna’s and can also be stored at fridge temperature, making distribution logistics much more straight forward. The major win of course is only having to jab people once and the US will have 100 million doses to distribute by the end of June – and they’re currently averaging about 1.5million jabs a day, so are doing a great job at their roll out and are up to almost 20% of the population having received dose one.
A country doing even better is Chile. They’ve managed to catch up to other countries incredibly swiftly, with 16% of the population vaccinated in just 21 days! Here’s an article on why they’ve been able to do so well and it’s a great read. They’re now hoping to have 80% of the population vaccinated by the end of June.
Joe Biden has authorised his first (acknowledged) use of America’s military force since becoming president. Last night an airstrike was carried out in Syria and was targeting Iranian backed militias and is said to be a response to attacks on US forces in Iraq earlier this month. The strike is said to be one of the most limited responses presented to the President and it is aimed to show some strength, whilst not dialling up the confrontation rhetoric. We’re yet to see how this play out with Tehran.
The rise in US bond yields hit an interesting level yesterday, surpassing 1.5% for a time – the first time it’s been at this level since February of last year. The 1.5% threshold is interesting, because it’s about the same level as the S&P500 dividend yield, meaning if you take out the potential appreciation of stocks, then there’s no difference on the return on investment between a bullet proof government backed bond and a pile of stocks that have increased in value by 25%+ despite the economic ‘headwinds’ of late. Such a revelation might lead investors to place a larger asset allocation into bonds, which don’t come with the risk of falling valuations, which might in turn hamper the progress of the stock market. So something to watch.
Today is reasonably busy on the calendar, with a load of US inflation data (so keep an eye on those bond prices) and a few central bank speakers from the UK and Europe. It’s also month end, which not only keeps everyone in finance busy, it also means markets will continue to square off positions and as such could be a little choppy.
Have a great weekend.
