Good morning,

It’s another week of high expectations, with Brexit talks in London and apparently something agreed on fisheries that will allow talks to move forward. The agreement being reported in The Telegraph is that Europe will recognize British sovereignty over UK waters and is likely to include a transition period, where the UK can increase the size of its fishing fleet and the EU can come to terms with landing smaller quotas. Nobody has said how long this period will be, but we reported something very similar to this back in the summer, so it will be agonizing to think they’ve gone round in circles for this long! Once Fishing is done it really falls to the level playing field and then how this is all going to be enforced. If those too have a half baked solution, then there could finally be agreement. Boris is keen to sign something whilst the negotiations are on British soil, so could this be the week?

Away from Brexit, Boris will have a domestic agenda to fight over the next couple of days, as his tier system goes to a vote. He’ll be speaking in the Commons later today on the subject and we’re also due to see some forecasts on the social and economic impacts of the tier systems, which rebellious tory MP’s have insisted on being able to review ahead of the vote. There’s also been data on how the virus has spread during lockdown and the high-level number is that infections are down by 30% since the start of the month. R is below 1, but infections per 100 people are roughly double what they were estimated to be back in September, so Boris will be pushing hard to get his tiering approved and could include a time limit on the system to sweeten the deal, meaning they’d automatically expire at a certain date, unless MP’s voted again to reinstate them.

The Bank of England are making some more upbeat noises about the economy, saying that vaccine optimism coupled with the huge amounts of stimulus balance out the economic outlook for 2021. Up until now the Bank has said that risks were almost all skewed to the downside, but Andy Haldane the Bank’s chief economist has said that inflation might even start to pose some risks over the medium term. If inflation comes back quickly the bank will be stuck between a rock and a hard place on interest rates, but given that QE has done very little to inflation over the last decade, we’re not overly sure what’s different this time round?

Perhaps the highest profile casualty of lockdown 2 is Arcadia Group. Sir Philip Green is likely to call in administrators today, but there is an outside chance that a rescue could come in the form of a £50m unsecured loan from Mike Ashley. Mr. Ashley is apparently awaiting a response to his offer, but will no doubt be bidding on the assets if the administrators are called in and will go even longer on his bets that high street retail does have a future – There are reports that he’s so serious about its future that he could be lining up to buy Manchester’s Trafford Centre. He won’t be a solo bidder in any breakup of the Arcadia group either, as it’s reported that Marks and Spencer will be looking at some of the brands and perhaps the Hut Group will be looking to take advantage of being newly publicly listed and its abundance of capital. The hope is that deals can be made swiftly, not only to protect the bulk of the thousands of direct employees of the group, but also that of its vast supply chain, where the Telegraph caution that Arcadia could be the ‘Carillion of retail’. The last point of note is the pension fund, which has a £350m deficit. The government has called on Sir Philip to make good the hole, but whether he’s obligated to remains an open question.

In Europe: The FT is reporting on a draft of text that they’ve seen, inviting the US to seize on a “once in a generation opportunity” to bury the Trump era tensions and forge a stronger alliance around key shared values, such as climate change, the covid response and better regulating tech giants. The alliance would be in a much better position to confront China’s growing ambitions too, something they see as having become more pronounced through the last four years. There would be quite a bit of work to do and a number of hurdles to cross if such a grand plan were to be enacted, not only with the US but also within the EU, where individual member states have varying strengths of relationship with Beijing.

Today is the last day of the month and as such we’d expect plenty of portfolio rebalancing from fund managers, particularly those unable to do so on Thursday and Friday of last week.  This could come at the detriment of share prices, that have had an amazing run of form this month, thanks to vaccine announcements and presidential elections. Oil is having a rocky start to the week as it looks like OPEC won’t agree further output cuts and the geopolitical instability following the assassination of Iran’s chief scientist hasn’t yet played out the way many thought it would. The Dollar is once again on the back foot and could lose a couple of key support levels if we keep up this direction of travel. Meanwhile Sterling was weaker going into the weekend, but this might well have been positioning ahead of a possible EU deal.

Have a great week


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