Good morning,

We saw risk come off in the markets yesterday, with equities lower and the dollar stronger.  This was more ‘death by a thousand cuts’ than one major headline, but is mostly around the decreasing likelihood that Europe is going to be open for business before late summer.  This them then continued into the afternoon session, where Fed members were talking about inflation and Janet Yellen was talking about tax rises – albeit proportionate ones that will be used to finance massive infrastructure projects.

The Pound also slipped from its perch versus the Euro and is touching the lowest levels versus the Dollar we’ve seen for weeks.  Sterling has a strong correlation to risk at the moment, so the risk-off theme doesn’t help its cause, but it’s also had the benefit of a lot of positive vaccine news over the last couple of months to help it on its way higher.  As we know, that positivity is reversing and it is likely that the spread between the pace of the UK and European rollouts will narrow which in turn is reducing the advancement the Pound has had over the Euro.

Boris might not have helped matters as he addressed the 1922 Committee last night and decided to base his words on Gordon Gecko’s ‘greed is good’ speech.  The PM said that “the reason we have the vaccine success is because of capitalism, because of greed, my friends”.  The remarks were probably off the cuff and not thought through, but at a time when developing countries are struggling to manufacture vaccine because of the risks to corporate profits, its not great PR.

The US doesn’t have the same issues as we do when it comes to vaccine doses, as they say they’ll have 600 million doses by the end of May – more than enough for two doses per adult.  Another big number they’re pleased about is that as of last night they’ve distributed more than 100 million support cheques, which were part of Biden’s stimulus plan.  Still, these remarks weren’t enough to turn around the fortunes of the market who already got the stimulus high weeks ago and are on the lookout for their next fix.

Staying with the US:  The first phase of the US-China trade deal involved commitment from China to buy billions of dollars in goods from the US over two years.  Figures show that of the $378bn target for two years, China has only spent $123bn in 14 months, putting them about $100bn short of the run rate they’d need to have hit to meet the target and with little prospect of being able to catch up on such a shortfall.  We’re not sure how this sits with the new administration and therefore what the repercussions will be.

China is also negotiating with the EU at the moment, which might come unstuck as the EU’s sanctions on China, because of its actions in Xinjiang, were met with retaliatory sanctions on members of the European Parliament.  Both parties had agreed to a pretty wide ranging “Comprehensive Agreement on Investment” late last year, which would open up market access for each other, but ratification was contingent on China setting out a roadmap to address human rights concerns that the EU had.  This latest spat puts the whole thing at risk, the FT has the story.

In Israel:  It looks like Benjamin Netanyahu has fallen short of the votes he’d need to get a parliamentary majority in the fourth election to take place to try and break the impasse. His party appears to be eight seats short of a majority, but there might be enough minority seats willing to give him the support needed to form a government.  It’s still being counted up, so we’re likely to know more as the day moves on.

In shipping:  If a container crisis wasn’t bad enough, there’s now a ship stuck in the Suez canal!  The MV Ever Given was blown off course and has grounded, leading to dozens of other ships backing up on both sides of the crossing.  Authorities have warned that it could take a couple of days to resolve the situation and it’s no easy task, with the ship buried pretty far into the eastern bank of the canal.  The BBC has more.

Looking to today:  UK inflation numbers for February have come out lower than expected.  Inflation overall grew by just 0.4% in the 12 months to February and was helped by clothes price inflation falling last month versus last year – Normally clothes prices increase in February as the end of the January sales signals and the switch to a new season ends discounting, but this year retailers have kept on with the sales and incentives.
Later today we get US energy inventories, which could be interesting as yesterday oil prices got knocked on the back of larger than expected inventory build up and also the prospects of demand in Europe falling as lockdown continues – both Brent and WTI look like they could break back below the $60 mark if things don’t go to plan.

Be well.

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