Good morning,

The EU want more time to ratify the Brexit deal, according to a story in the Guardian:  They say the bloc is likely to make a formal extension request when Michael Gove meets the Commission’s vice president tomorrow.  The reason for the ratification is unknown, but does mean that the current agreement won’t be set in stone for a while longer – which might be seen as more an opportunity than a disappointment?  As well as a possible extension to ratifying the deal, the discussion will focus on some of the border issues that we’ve been facing on the mainland and also the Northern Ireland protocol, which is an area that Mr Gove will probably ask for an extension on, before hopefully trying to get into the mechanics of the solution and see if it can be made more efficient.  Michael Gove yesterday rejected the DUP’s calls to scrap the protocol, saying “We do not want to go there if we can possibly avoid it.  We believe there are ways of working with the commission in order to resolve the very real issues that exist on the ground”.  The meeting outcome needs to be positive, as the general direction of travel of the relationship has been downward in the last few weeks and could do with some recognition from both sides that we’re still stuck with each other of sorts and we should be making it work.

In Italy, parties seem to be warming to the idea of a Draghi led government, with the only real sticking point now being an online poll of the 5 Star Movement’s membership, which was set to take place today, but has been postponed.  All other parties, and indeed the senior leaders of 5 Star, seem to be on board, having now been privy tDraghi’s economic regeneration plans – which crucially for 5 Star don’t involve going to the EU and tapping the bailout funds.  The 5 Star polling seems like a formality now, but could well delay the meeting between Draghi and the President which would enaction the government formation, though in the meantime he can work out what his cabinet is going to look like and how to please everyone with its makeup – a tricky proposition.

Across the Pond:  Trump’s lawyer rambled his way through the impeachment opening statements yesterday, drawing criticism from pretty much everyone.  The trial moved ahead following a vote on its constitutionality, which was won 56-44, with only six Republicans being swayed to vote with Democrats.  The rest voted for dismissal, that once again confirms that it’s highly unlikely he will be impeached, as that takes a two thirds majority vote.  The trial resumes today and the long read on this is in the Washington Post, if you’re interested.

Joe Biden has been convinced that Stimulus cheques should only go to those earning a maximum of $75k, or a combined household income of $150k, which is down from the $200k combined household total that was being talked about.  This coincides with research that shows more Americans are investing in the stock market, as those with disposable income find themselves limited as to what they can spend it on, with restaurants and events largely cancelled, so are opting instead to either do up their houses or put cash into stocks (or both).  Biden’s stimulus package is getting closer to being finalised and hopefully will make it into law (and people’s pockets) next month.  Concerns that such huge sums of money will lead to a surge in inflation are being played down, with his pick for director of Office and Management and Budget saying that though it is a risk, the greater risk is a scarring of the economy and as such the package is justified. Though we’ll take that as an admission inflation is not something to ignore.

Some other good news from the US is that their recent surge in covid cases has weakened significantly.  Cases are down 56% over the last month and are back below 100,000 per day, whilst hospitalisations are about 40% lower.  The vaccine effort in the US is gathering pace too, with some 42 million people now having had their first dose.  Globally it’s 132 million people, which represents 1.7% of the global population.

According to the Sun, we’re due some data out from UK studies in the next few days that shows that vaccines are 64% effective in the first dose, regardless of age and that hospitalisations of people that have had the vaccine are a fraction of what they were before.  The news, they say, will mean that the government can speed up the re-opening process, though we’re not set to hear about that timeline for almost two weeks.  The UK has now vaccinated more than 13 million people, which puts them perfectly on target for the first fifteen million people to have had their first dose by Saturday.

Sterling has benefitted from the vaccine news and also the general ‘risk on’ sentiment that is out there.  The Pound is treading into territory unseen against the US Dollar in quite some time, though its bid up against the Euro seems to be slowing somewhat, possibly due to the pace at which vaccination is picking up across Europe.  The Pound being so directly correlated to risk appetite is a good thing all the while the music is playing, but does risk a significant fall from grace if stock markets do decide that they’re overstretched at these valuations.

The Chinese Lunar New Year holiday will start taking traders off desks and liquidity out of the system over the next few sessions, so we could be heading towards a quieter close to the week in most asset classes.  Given the recent moves of late though, there’s every likelihood that traders will want to take some risk off before they head into a holiday, so perhaps that gives us a flurry of activity.
Chinese markets have been on a bit of a rollercoaster for the last couple of weeks, as the central bank started operations to drain liquidity out of the markets in a bid to try and stop various asset bubbles getting any bigger.  The move had the desired effect, but also some pretty significant consequences as it caused overnight lending rates to skyrocket and investors to get out of investments and into cash, causing big downward moves in various stock markets.  Typically the central bank starts increasing liquidity as the country heads towards New Year, as people use cash to travel and also to gift to one another over the holidays, therefore doing the complete opposite is a sign of just how concerned they are of what an asset bubble, and its subsequent bursting, might do.

Today we focus on two big speeches by central bankers: Andrew Bailey will give the annual Mansion House speech at 5pm, followed by fed chair Jerome Powell speaking at the Economic Club of New York shortly afterwards.  The former will be an interesting one, as it’s not just going to be focussing on monetary policy and risks to the economy, but what Mr Bailey sees for the future and the evolution of the financial services economy post Brexit.  We’ll let you know what he thinks of it all, tomorrow.

Be well.


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