Good morning,

The headlines were more about the changing of the guard in the White House yesterday, but the news that got the market going was the testimony of Janet Yellen, who replaces Steve Mnuchin as treasury secretary:  Ms Yellen floated the idea of issuing 50 year bonds to take advantage of lower interest rates for longer.  Currently the longest date debt issued by the government is 30 years and there’s always a market for them.  The jury is out on whether there would be enough appetite out there for a 50 year duration and previous studies have shown that there probably wouldn’t be.  European countries have found success recently in issuing ‘century bonds’ so there is precedent in market demand – worst case the Federal reserve can take a few trillion dollars worth and kick the QE can down the road beyond most of their lifetimes?

Mitch McConnell, the Republican leader of the House, came out with a scathing attack on his almost former boss, Donald Trump.  He said of the Capitol Hill riot “the mob was fed lies.  They were provoked by the president and other powerful people and they tried to use fear and violence to stop a specific proceeding of the first branch of federal government which they did not like.”  The verbal indictment of Trump by such a senior republican is a pretty big thing, as it sounds like he’d vote to impeach Trump in the trial.  He’d only have to convince 16 of his colleagues to join him – an easy-ish ask when you’re that senior – and the impeachment would pass.

One thing Trump did get right, sort of, was his hard stance towards China, according to the incoming secretary of state, Antony Blinken, who said “President Trump was right in taking a tougher approach to China.  I disagree very much with the way he went about it in a number of ways, but the basic principle was the right one and I think that’s very helpful to our foreign policy.”  His remarks come as outgoing secretary of state Mike Pompeo accused the Chinese Communist Party of genocide against Uighur Muslims and other minority groups in Xinjiang province, in the West of the country saying “I believe this genocide is ongoing and that we are witnessing the systematic attempt to destroy Uyghurs by the Chinese party-state.”   Two observations:  Pompeo knew about this for months if not years and saying it the day before you leave because it’s no longer your problem is poor form.  Now that it’s ‘out there’ and acknowledged by a current, albeit outgoing, secretary of state, the new administration can’t unsee it and they’ll have to go straight in on this issue.

The UK House of Commons failed to pass a vote last night that would prevent the UK from making trade deals and doing business with any country deemed by the British high court to be committing genocide.  The defeat was narrow and MP’s voting against it weren’t necessarily voting in favour of trade at any cost, but instead questioning whether the high court should be the ultimate decision maker.  Iain Duncan-Smith is going to propose an amendment to the bill which would force the Commons to debate doing business with any country that the high court rules is committing genocide, saying “the wilful ignorance of alleged genocide and grave human rights abuses in China and elsewhere must stop”.

Numbers out yesterday show that  foreign direct investment into China hit record highs last year, to just shy of one trillion yuan ($150bn USD) – so there’s a lot at stake here for everyone.

Covid jabs in the UK are slowing down as supplies start to dwindle.  The output of the Pfizer vaccine from its Belgian factory is reduced as they make upgrades to the facility which will mean much larger production late next month.  The news means that what was looking like a slam dunk for the government to reach its 15 million target by mid-February is now looking very tight indeed.

Another blow for the vaccine and the UK’s race to normality is information from Israel, who have found that people who have had just one of their two jabs are getting infected with covid at a higher rate than they would have expected and are putting it down to the Kent strain of the virus. They say that protection after one jab is in the 30%-60% region, but after the second jab immunisation is about 98%. Given that there’s a delay in the UK of up to 12 weeks between jabs one and two, this does give us a longer outlook for restrictions to be in place.

Still, The Bank of England’s Andy Haldane isn’t letting that get his glass less than half full.  He’s said that the Q2 economic recovery will be “at a rate of knots”.  He also thinks that we’ll reach an escape velocity once we’re within 5-10% of pre covid GDP levels where the chancellor can wind down furlough without seeing further job losses.  Goldman Sachs are expecting a massive rebound in the second quarter of this year in both the UK and US as vaccines reduce hospitalisations which in turn reduce enforced social distancing, albeit we have to ride out a recession and more hits to GDP this quarter before we get there.

Today’s data sheet is all about inflation, though the UK number barely moved and in turn barely moved the market. Historically an inauguration is a market non-event we wouldn’t expect this one to be different, though if there are violent protests around the country that might dampen the mood.

Be well


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