Good morning,

The markets may not have blinked whilst it was all kicking off in Washington on Wednesday, but they still let out a sight of relief and traded higher by 1.5% yesterday.  The move higher gives US equities their third ‘all-time high’ since the start of the year, with prospects that even more money is on the way from Joe Biden much more appealing than that of higher corporate taxes and possibly more rigorous standards for tech firms to uphold, which might in turn increase operating costs (interesting that Facebook has chosen to block Trump’s account for the rest of his presidency because it’s ‘too great a risk’, which seems to us like a blatant attempt to try and win some easy credit with the incoming administration with zero downside to them, given Trump is basically President in name only at this point).

There are reports that Joe Biden could ask congress for as much as three trillion dollars for an infrastructure and development fund the moment that he takes office, on top of the top-up he’s pledged for people receiving government cheques to take those from $600 to $2,000.  Had he not won control of the Senate via those Georgia run-offs this week, such amounts would be unthinkable and though it is his prerogative, spending so much so quickly won’t do much to heal the political divide as Republicans will be outraged at such numbers.

The Federal Reserve minutes yesterday showed unanimous support to continue pumping in $120bn a month in QE and said they’ll give plenty of notice before they start to consider winding the number down – the last thing they want is another “taper tantrum” when the recovery is bound to be fragile.  They also agreed that the recovery that they’d seen so far had been stronger than forecasts and that’s led them to a slightly more bullish position on the first quarter of this year, particularly as vaccination gets underway.  Inflation expectations are still heavily subdued, despite all of this new money, and they don’t see it getting consistently back above their target 2% until 2023.  Interest rates in the US could stay where they are until 2024.

UK interest rates are still a subject of debate, not least with the news of the latest lockdown earlier this week sending the odds of a move into negative territory up to 50% from the 30% they were at before the New Year.  The Bank of England has done their homework and their next scheduled speech is from Silvana Tenreyro, one of the external members of the monetary policy committee, entitled ‘let’s talk about negative interest rates’.  The move down isn’t a done deal and the Bank would far rather swerve them where possible, but their only other tool at the moment is the rather blunt instrument of asset purchases, which leaves them with the liability rather than the market.
There was a speech yesterday from another BoE member, Andrew Hauser, talking about how the central bank needs to increase the instruments at their disposal to deal with future financial crises – noting that their response this time was justifiably ‘whatever it takes’, future market dysfunction cannot and should not be papered over by the bank just stepping in with such sweeping measures to calm things down. Instead the Bank seem to have acknowledged that their expanded role in ensuring functional markets is here to stay and now need to develop tools that mean they can do this job but not at any cost.  This acknowledgement is no bad thing and if we’re going to be living in a world with such large and dynamic financial markets, having a manual at hand to fix when required is pretty sensible.  If you need any help sleeping this evening, here’s the text of the speech.

Looking at today –  and staying with a more economic than political theme – we’ve got US payrolls numbers as the highlight.  Normally the data highlight of the month but recently overlooked, we might see a reaction if the number is significant in either direction.  Thereafter, hopefully, we can go into the weekend without worrying too much that it’ll be very different come Monday!

Be well.

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