Joe Biden signed into law that $1.2trn infrastructure package – and about time. The money, which is only really $550bn of new spending with the balance made up from left over pandemic funding, will be spent transportation, water, energy and broadband infrastructure. The news should provide a welcome boost for Biden, who’s popularity at this point is almost as low as Donald Trump’s average rating, albeit Biden’s fall from popularity has been pretty fast, with a fall from 57% approval in February to 42% now. The bigger boost for him will be if his party can agree on the larger “Build Back Better” social spending programme that is back on Capitol Hill this week for further debate, with the congressional Budget Office hoping to have full costings for the plan by Friday – a condition which was insisted upon by a couple of hold out moderates. The market has rallied slightly on the news of yesterday’s signing and the dollar has weakened a little.​​​​​​


Dollar vs Euro
The Dollar continues to be the dominant force in the markets though, particularly against the Euro. The strength it’s showing over its peers is largely being driven by last week’s eye-watering US inflation print and calls for the Fed to act sooner – even if a rate rise won’t put more workers at the docks to improve bottle necks. The expected rate rise means the divergence in yields between the Euro and the US dollar is expected to be about 1.5% by the end of next year, with the Fed hiking and the ECB happy to sit on their hands. Either way your money is losing value relative to current inflation levels, but it’s just a little less painful if that money is in a US Dollar bank account.


Europe may have more issues than a weak currency, with trouble along their borders: They’ve warned Germany of “serious consequences” from any hostilities against Ukraine, pledging “unwavering support for the independence, sovereignty and territorial integrity of Ukraine”. It comes after the EU noted a significant build up of troops on Ukraine’s borders, with about 114,000 troops between land, sea, and air. Nato has been undertaking military drills in the Black Sea, but Russia has accused them of “negative bravado”. One area that Europe and Russia agree on is the need to de-escalate the Belarusian border crisis. Emmanuel Macron spoke with Putin yesterday and though they couldn’t agree on the origins of the crisis, they were able to agree that something needs to be done to cool it. Angela Merkel meanwhile spoke with Alexander Lukashenko yesterday on the same subject, though it’s the first time a western leader has spoken to Lukashenko since the rigged election of 2020 – we’re not too sure how this conversation went, but there hasn’t been an announcement on a plan to manage the crisis and Europe are still preparing further sanctions against Belarus, so we’re guessing neither were resounding successes.

Boris Johnson has told the EU that it needs to choose between supporting Ukraine and greenlighting Nordstream 2. Speaking yesterday he said “we hope that our friends may recognise that a choice is shortly coming between mainlining ever more Russian hydrocarbons in giant new pipelines and sticking up for Ukraine and championing the cause of peace and stability”. He was clear that “we support the sovereign integrity of Ukraine (and) that is not because we want to be adversarial to Russia, or that we want in some way strategically to encircle or undermine that great country” – though he clearly recognises, as should be obvious, that the confluence of circumstances has been well-engineered by Moscow to get a favourable outcome.

The FT has the story…


World Trade Organisation
In other news: The World Trade Organisation is saying that trade in global goods is slowing down due to supply issues and colling demand, which could in turn lead to an easing of congestion at ports and a faster return to supply chain normalisation. They said their goods trade barometer dropped to 99.5 in November, below the 100 baseline and well below the record 110.4 seen in August.


US vs China
Joe Biden and Xi Jinping are talking face to face for the first time since Biden took office. The virtual summit is going to cover a number of issues, with Joe Biden keen to get some ‘common sense guardrails’ in place so that tensions don’t boil over. China took an early and strong stance on Taiwan, warning the US that encouraging the Taiwanese independence agenda was “playing with fire”. We listened to a great podcast over the weekend talking about the US-Taiwan-China situation, which basically said that Taiwan is too strategically important to both countries and both countries are too important for each other for the status quo around Taiwan to be changed, and as such there will continue to be each side ‘testing’ the other to see if it remains an important agenda item to them (military fly overs, US aircraft carriers deployed etc.) but that overall they both need each other too much to fall out over it.

The podcast is here…

The summary on Biden Xi here…

Looking Ahead
This morning we’ve seen UK unemployment numbers come out and they have fallen to 4.3% in the 3 months to September. That average is perhaps distorting the picture, though, with the September single month unemployment number at 3.9%. This means that the UK is basically at full employment and in turn means that wage rises are inevitable if companies are to fill vacancies. This in turn might force the hand of the Bank of England to raise interest rates and that in turn has boosted Sterling this morning.


Have a great day


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