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Monday Rundown

Macro Monday, expectations set on future tax cuts, unwelcome opposition for Labour after Galloways Rochdale by-election win, ceasefire talks stalled, Russians intercept German air force video conference, talk of issues and downgrades of US regional banks, and looking ahead to this weeks data calendar.

Macro Monday

The UK exchequer has run a budget surplus only five times since 1970, the last of which was in 2000. On average the UK budget deficit over that time period has been 3.7% of GDP

It’s budget week this week, which has meant that the Chancellor has been doing the rounds on the Sunday sofas to set some expectations around the tax cuts we might well see.

His predicament is that to stick to his own rules, he needs to show a path to debt falling and that because his forecasts are so sensitive to change, he’s treading a very narrow path to be able to deliver those cuts without being in breach of the rules.

So, what does this mean for us? Well it seems likely that he’ll cut National Insurance by up to two pence, but to do so he’ll have to raise money from elsewhere, such as changing the tax status of people renting out second homes as “holiday lets”, some more taxation on oil and gas, narrowing who would qualify for “non-dom tax relief” and, of course, a 0.25% cut to public spending.

A 2p cut in NI isn’t to be sniffed at, but there will be a lot in the Conservative party that would have liked him to go further, particularly in an election year.


Staying with politics: George Galloway’s win in the Rochdale by-election has given Labour some unwelcome opposition to the left of their position, as well as for anyone that wants the opposition to take a stronger stance on Gaza.

Galloway has said that there are 59 more Workers Party of Britain candidates ready to stand at the general election, and will be targeting areas where they feel they can beat Labour to the win.

This could well be the media overplaying the impact of Galloway’s win, but up until now Sir Keir hasn’t had to worry about material competition from the left of his position (unlike the Tories who have reform sat to their right) and this could well change the dynamic.

George Galloway was name checked by a Houthi leader as the ship the Rubymar sank in the red sea after being hit by a missile on the 18 February. In a message to Rishi Sunak, the rebel leader said there was a chance to salvage the ship by “sending a letter of guarantee… signed by George Galloway, that the relief trucks agreed upon at that time would enter Gaza” – which we can’t imagine the PM entertaining for a second.

On the Middle East

Hamas have stalled ceasefire talks by refusing to confirm how many hostages are still alive. The talks have been ongoing and there is hope that a deal can be done this side of Ramadan, which starts on Sunday – and there’s even hope that it might come in the next 24 hours, if the other terms can get over the line.

So far they’ve agreed the duration of the ceasefire, an exchange of Israeli hostages and Palestinian prisoners and, we think, have agreed that Israeli troops leave the north of Gaza and that residents are able to return.

In Ukraine

The head of the German air force has had a video conference of his intercepted by the Russians and the contents of the call are quite politically and militarily damaging.

The call reveals that UK operatives are active in Ukraine – saying that these people would be useful to Germany if they were to deploy a portion of their missile stockpile in Ukraine, as the British could take over the running of the operation once the Germans had done initial training – though this deployment in itself is causing issues, as the military are up for it, but Olaf Scholz is not.

On the call the Luitenant Gerhartz also says that France is loading up Audi Q7’s with missiles and driving them into Ukraine.

The call was easily intercepted by the Russians as it was made on an unencrypted vide calling app, which Gerhatz dialled in on from a mobile phone from Singapore! The Times has the article, which is well worth a read, click here to see it.


In the US

We’re starting to hear about issues and downgrades of regional banks, which might gain a bit of traction with the rumour turning to fact if enough traders decide they think there’s truth in them. The news started on Friday after New York Community Bancorp announced that it has found material weaknesses in internal controls around the valuation of its loan book. That news took 26% off its stock price in a day.

This news was followed by Republic First, a Philadelphia regional bank, confirming that a $35m deal they had in the works to shore up their balance sheet had collapsed, which is meaning the sector is back under the magnifying glass a year after SVB went under.

These banks are far smaller than SVB and the risk of contagion in the regional banks heading into the national banks is quite low – if anything it is likely to end up as another consolidation play for the likes of JP Morgan and bulge bracket banks, who can easily swallow these loan books and run the risk of a few defaults in return for a few thousand more customers.

Looking ahead

Aside from Wednesday’s budget, we’ve got a reasonable data calendar, with service sector data from the UK, Europe and the US out tomorrow, European retail sales on Wednesday and the ECB’s interest rate decision on Thursday – interesting bot because they’ll cut rates, but they might update their stance on how soon they will start cutting. On Friday we get Joe Biden’s State of the Union address, which will no doubt be interesting, but a political weapon in the hands of Donald Trump!

Have a great week.

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