Good morning,

A stellar retail sales print in the US yesterday led to one of the regional Federal Reserves more than doubling their outlook for US GDP growth in the first quarter.  The boost in spending is partly attributed to people spending existing stimulus cheques, knowing that there’s more on the way soon from their new president.  The sharp rise caught markets a little off guard, as they had forecast a 1.1% year on year increase, but the numbers showed a 7.4% jump in sales versus January last year.

The move higher also prompted Goldman Sachs to review its 2021 forecasts for the US economy:  They’re now looking at full year GDP growth to be at 7%, unemployment to be down at 4.1% and inflation to be just under the Fed’s 2% target by the end of the year.  They’re pointing out that vaccine data is showing that half of the US population should be vaccinated by May, which will really push things forward – since January 1st the US has been able to administer more than 50 million vaccines.

The retail sales move did strengthen the Dollar a little, as bond yields jumped by more than 20bps – which is a rarity in this world of near zero interest rates.  The move in yields was the obvious reaction to such strong data, with markets asking ‘if this is how quickly we bounce back, how long before the Fed start talking about tapering QE?’.  That question might have been partly answered in the Federal Reserve meeting minutes, where a number of members said they were willing to look past higher inflation numbers as they start to emerge, because they want to get price rises back on a sustainable track and one off cost increases were almost inevitable for goods that have been affected by supply chain issues and that will become more scarce as demand returns – as such they  promised to keep the QE taps on until “substantial further progress” has been made towards inflation and unemployment goals.

The retail sales news would normally have been a boost for stock markets, but the risk that good news equals tighter monetary policy kept the brakes on the stock markets and means that the S&P is once again unable to break the 4,000 level, which is starting to look like a pretty thick glass ceiling.  The market has been within 2% of the level for the last ten days, but doesn’t seem to want to risk going there for fear of the immediate question it raises: ‘where next?’.

One asset that doesn’t seem to have a problem breaking into new ground is Bitcoin.  The crypto currency has sailed passed the $50k level as high profile investors continue to emerge as interested parties in the asset.  Yesterday it was the turn of Black Rock, the world’s largest asset manager, to confirm that they have ‘started to dabble’ in the space.  There’s a really good opinion piece on Bloomberg that speaks of the continued moves higher being driven by FOMO above all else and that anyone that talks of it being a tulip-esque bubble is struggling to justify their thinking when so many big names and institutions are on board, despite the inherant weaknesses that Bitcoin has as a store of value.

The White House has confirmed that it is asking the Department of Justice to review whether the president has the authority to cancel student loan debt.  This comes as leading Democrats have once again urged Biden to cancel $50k per borrower in student loans.  The President is said not to favour such a blanket cancellation and instead is of the opinion that wiping out debt above $10k per person should be means tested.  There are currently more than 42 million Americans with student debt and they collectively owe more than $1.5trn dollars.

In the UK:  The Bank of England has said that they’d look at QE ahead of going negative with interest rates, as QE is a “tried and tested tool” this was another nail in the coffin for negative UK base rates and saw the Pound edge a little higher versus most of its peers.  The run of form of the Pound is starting to look a little over stretched, but if Boris can pull off a re-opening of the economy that works at a brisk pace, then there will be economic fundamentals to support such a move.  The current thinking is schools open on the 8th of March along with non-essential retail,  April could see larger hotels and self-catered holiday lets and May bringing pubs and restaurants back online, albeit with heavy distancing and number restrictions.  There is speculation that the stay at home order for office workers might not be lifted until early summer, which will leave many frustrated (others less so!) but we’ll have to wait until Monday for the official line – or wait and see what the papers all say on Sunday, as it will no doubt have been widely leaked by then, which already seems to be happening.

Today is the chance for the opposition to set out its vision for the UK, with Sir Keir Starmer set to unveil the Labour approach to rebuilding a post Covid Britain.  There has been some complaint of late that he’s not really set out his party’s agenda and is instead just keeping the government in check rather than challenging them to think big.  His speech today will need to be bold in its vision if he’s to impress those that in the party that feel left behind by its departure from Corbynism, but it will also have to be practical, workable and look like that of a government in waiting, if it is to keep everyone – particularly the opposition – from shooting it down at first sight. At this point, it’s his to lose, so we’re keen to see just how good a case he can put across and whether that props back up the party’s opinion ratings, which were level pegging with Conservatives up until a couple of weeks ago.

We’ve also got some interesting data points heading our way today, with US jobless claims the most obvious potential market mover.  There’s also some energy inventories out from the US, which will show where stock piles were last week.  This in itself won’t be interesting, but given that as much as 40% of US production capacity is currently offline because of the extreme cold, these numbers will provide the benchmark for next week and how much supplies will have reduced.  Oil is already in positive enough territory for Saudi to be speaking about production increases, so if stockpiles are low this week and we know they’ll be lower next, what does that do to crude prices today?

Be well.


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