Plan B Covid Strategy?
Sajid Javid is convinced that the public will start to take their own precautions and go and get booster jabs, so that he won’t need to enact Plan B of the government’s winter covid strategy. This position was called into question in the House of Lords, with one peer questioning how the government expect people to act responsibly, when not one Conservative MP in the Commons wore a mask in a crowded chamber yesterday, whilst another as asking whether they should start running a book on when the government will U-turn and implement plan B! another question that went without answer was whether the government still trust the science that is being provided to them by Sage, which was a great question – because if they do, why aren’t they acting now and if they don’t, why aren’t they changing the team?


New Zealand Trade Deal
Some good news: We’ve got a trade deal with New Zealand. The deal is expected to increase trade with the country by as much as 30% over the next ten years, which will add around 0.0115% to GDP! The good news is really that this brings us a step closer to the Trans Pacific Partnership, which is a trading bloc with a combined GDP of $13.5 trillion and therefore a much greater opportunity. The NZ deal has raised concern amongst farmers that they will suffer from competition of low cost dairy and agriculture products, but the government has kept quotas in place that gradually increase over the years ahead, so immediate fallout would be very limited.


Another Trade Deal?
Another trade deal: The UK is looking to sell surface-to-surface missiles to Ukraine. The plan is to get some 21st century hardware in place as a deterrent to Moscow so that when Europe switches on Nordstream2 and Ukraine stops becoming the main transit route of Russian gas to Europe, they can defend themselves against any Russian attempt to try and take the country. Ukraine are of the opinion that Russia could increase tensions with further military activity on its Eastern border this winter, as the Kremlin believes Europe will be less likely to take a hard line because of their winter fuel requirements.

In Canada, the consumer price index rose 4.4% in September from a year earlier, which is the highest reading since February 2003, slightly exceeding forecasts of 4.3%. This initially caused traders to bet against the Bank of Canada’s guidance that policymakers won’t raise interest rates until the second half of the year. Governor Tiff Macklem has already sign posted that there will be four interest rate hikes in the second half of 2022 and another four hikes in the second half of 2023, although we have seen recently, plans can change, which explains the traders positions. The series of eight, 25 basis point hikes are due to start in July next year, followed by moves in September, October and November. Macklem’s position is based entirely on the fact that inflation is transitory, a term we have heard all too often recently, and a concept which has proven unfounded in many jurisdictions so far, which explains why the Bloomberg forecast for hikes in Canada has risen to 45.9% in January 2022 and 91.6% in April 2022.

The planned sale of a majority stake in Evergrande has fallen through, leaving the market back at square one and with serious concerns over the health of the Chinese property market (and the contagion it might bring). The trading of shares in the company had been suspended whilst the deal was in progress, but now the developer has reapplied to the exchange to get them reinstated, which could lead to a rush to the exit for holders of the stock. Late last month Evergrande failed to make an interest payment on a bond, which triggered a 30 day grace period for the payment to be made before an official default event occurs. That grace period expires over the weekend and bondholders have said that they’ve had no meaningful interactions with Evergrande over the missed payment, which further fuels concerns that they haven’t got a solution to their problems. Chinese authorities insist that any contagion into the wider market is “controllable” but it is going to be a very interesting few days as this unfolds.

We Work
We Work goes public today, via a merger with a ‘special purpose acquisition company’. We Work will be valued at about $9bn, which is a far cry from the $47bn valuation that was placed on it by Softbank ahead of a failed IPO in 2019. The company has undergone radical changes since that point, but still isn’t profitable, having lost $3.2bn last year – though what commercial landlord didn’t lose money last year? – the problem is the losses seem to be getting worse, not better, so it will be interesting to see what trading is like over the next few days.
Have a great day.
This Morning Report was brought to you by Alex Ayoub


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