Good Morning,

It’s been a fairly quiet start to the trading week, which is a bit of a surprise given a couple of pieces of news over the weekend… In the US, covid cases have increased in Miami and California, with the latter seeing its highest daily spike in new cases – 4,515 in the past 24 hours.

Germany now has an R number of 2.88, a massive jump from 1.79 just the day before. The increases is leading local authorities to consider further lockdowns, as they’re having trouble getting people to stick to social distancing rules – to such a degree that one city needed to deploy riot police to get people to stick to policy! Germany’s been the posterchild of the pandemic thus far and for them to now be considering going back into lockdowns doesn’t bode well for the rest of us. One piece of good news however is that Italy’s infection and mortality numbers continue to fall. The country came out of lockdown at the beginning of June and has so far managed to keep the trend lines moving in the right direction, though there have been a few clusters of reinfection. Separately, Italian scientists claim that the virus was present in the north of the country more than two weeks before China reported its first cases. Scientists have re-examined sewage samples taken between October and February and found it was in Turin on the 18th December.

Staying with Italy: They’re budget deficit is likely to keep increasing as they work out ways to increase consumer activity and also take on state projects to try and reboot the economy. Infrastructure projects will be a big part of the plan and include high speed railways and high speed internet across the country. There are also reports of a possible sales tax cut to try and get people spending and the economy turning over at a faster rate. This creates the same double whammy for their treasury to deal with; falling tax receipts and increased expenditure. The current deficit is more than 10% of GDP but that is invariably going to increase and though Italy might find themselves at the upper end of budget deficit ratios, they certainly won’t be alone in having them.

Rishi Sunak is expected to announce a cut in VAT in the coming days as he tries to get the UK back up and running. This in conjunction with a “one metre plus” social distancing policy that Boris is set to announce is hopefully going to convince us all to get out and spending. The likelihood is that we’d get VAT cut in certain sectors that need a boost, rather than a universal cut, which would cost the government £35bn for every 5% that it cut, based on normal consumption – currently VAT receivables are on the floor. As well as stimulus, we’re going to need to see future tax hikes to pay for this and it might be the case that Mr Sunak alludes to what’s coming in the autumn budget in a bid to bring some credibility to his spending spree.

Back to Germany, where we the Lufthansa bailout deal could once again be scuppered, this time by its biggest shareholder. Heinz Herman Thiele owns 15.5% of the airline and wants a less direct government bailout than them taking straight equity in the airline.  He believes the government should stick to “financial aid packages, which are fundamentally very positive, and should not grow into the role of a return-oriented-investor”. It’s going to be a tough negotiation, as in theory Mr Thiele could block the deal but would stand to lose nearly a billion euros and the government could walk away but would see the national airline go into administration.

Across the Pond, Trump’s first rally since lockdown wasn’t quite the success that he’d hoped for: Ahead of the rally he had touted that more than a million people had applied for tickets and he’d had to arrange addressing an overflow crowd outside the 19,000 seat arena in Tulsa. However the arena was far from packed and the oversubscription of tickets was apparently down to thousands of Tik-Tok users that applied for tickets and then didn’t show up!

Trump’s due to sign orders today to restrict entry to the US on the H-1B an L1 visa schemes. The move could leave as many as a quarter of a million people who were in the process of moving to the US in limbo. The President’s plan is to hire American rather than import the skills that companies need, but plenty have warned that this isn’t the time to try such a move.

There isn’t too much on the calendar for today, so we might see if we can find some data on flight numbers from the UK to Spain, where quarantine restrictions have been lifted on Brits arriving. It would still mean holidaymakers having to quarantine upon return, but we’d bet that if you went for a two week holiday, Priti Patel will have done a U turn on that rule by then!

Be well.


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