Good morning,

The news that has the markets moving is that of Turkish President Erdogan sacking the head of the central bank.  The decision was announced on Saturday morning, when markets are closed, and was driven by the now former head of the central bank, Naci Agbal, raising rates by 2% last week in a bid to keep the weakening Lira in check which would in turn hopefully stop inflation increases.  Mr Agbal was only in his position for four months, but managed to briefly make the Lira the best performing emerging market currency of the year so far, with interest rate rises and other policy measures put in place to try and get on top of inflation. Unfortunately for him, President Erdogan hold his own monetary theories, one of which is that high interest rates inadvertently boost inflation.  This is the opposite of just about everyone else’s theories, except for the new head of the central bank, Sahap Kavcioglu.  Investors are now selling out of the Lira incredibly quickly and it’s near 20% move lower since markets opened has wiped out all of its gains for 2021 and is likely to continue towards levels seen in November when Erdogan last threw his toys out of the pram.

The politics of vaccines continues, with the EU looking likely to decide at a summit this Thursday whether to block exports to the UK.  Boris has been ringing round European heads of state to make his case, but the heavyweights in the room, Merkel, Macron and Draghi aren’t opposed to a ban.  The UK has warned of the heavy cost of going down this road, but as the lockdowns on the continent increase, we’d imagine they’re more focussed on how they can resolve the here and now than worry about the longer term implications.  Meanwhile Hungary continues to buck the EU trend and  has another 700,000 doses of the Sputnik vaccine on the way.  Germany is considering a four week extension to its lockdown after data show that in 10 out of 16 federal states, the infection rate has risen back above 100 per 100,000 people.  There is a meeting of German regional leaders today, but it might not be too straight forward a conversation, as locking people back down over Easter is not going to be a popular move.

There’s a BBC story from Saturday which outlines why developing nations are struggling to get their hands on vaccines – because rich countries are blocking them from developing their manufacturing capabilities.  The current production capacity is about a third of what is needed and because production facilities are predominantly in wealthy countries, that’s where the vaccines stay.  Developing countries would need access to the technology and expertise to manufacture the vaccines, but in doing so would also need patents, which are being held on to by the pharma companies that develop them.  Pharma companies are reluctant to give these up because it would mean diminishing returns for them and, they argue, less appetite to develop vaccines in the future.  The WHO are trying to encourage global leaders to use laws that force them to give up patents, though clearly that is going to be a tricky conversation to have – particularly in the US where big pharma spends about a quarter of a billion dollars a year in lobbying.

In the chip shortage story of late, another curve ball:  There’s been a fire at a Japanese factory that is going to close down production of advanced microchips for about a month and it might take three months for supplies to be fully back up to speed.  The fire at the Renasas Electronic Corporation’s building is going to mean another big impact on the automobile industry and for the company is going to mean more than $150m in lost revenue.  Computing power makes up about 40% of the cost of a new vehicle and those costs will only increase with short supply.

The other news out there is from US central bankers:  inflation isn’t just a one year thing, it will be around for a few, but will only take hold if businesses have to start price hiking because of wage demands and consistent input cost increases – we wonder how long businesses will be able to hold off on these hikes, if input prices rise quickly and persistently?
Oil:  China is almost at pre-pandemic consumption levels, which is good for Saudi.  Not so good is the step up in attacks on their infrastructure coming from Yemeni drones.

Looking to the week ahead and it’s pretty busy:  There’s UK unemployment stats, also inflation data and PMI numbers for both services and manufacturing. On Friday we get retail sales numbers.  All of this data should be reasonably positive, but given that it’s all backward looking, we don’t really think it will count for much on trading desks. We’ll be looking at the vaccination numbers in the UK for the week to give us some optimism – on Saturday we managed more than 844,000 and it’s hoped supplies will remain strong until the end of this week – but keeping a close eye on how the vaccine wars saga continues.

Be well.


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