Good morning,

The IFS has put a number on tax rises that they think the chancellor will have to implement if we don’t see a roaring resurgence in economic activity.  They think that it’s highly likely that we’ll have to find £60bn in tax hikes to be able to pay down the covid debt that’s been accrued, as well as finance a continuation of expanded public services that has helped get us through the crisis.  Though the eventual outcome is still very unclear, they say that now isn’t necessarily the time to stop shaking the magic money tree, and instead the government should be focussing on ensuring a robust recovery, but at base case scenarios, we’ll still be above 100% of debt to GDP in 2025 and could still have an annual budget deficit of £130bn by then too.

As well as the toll on the national finances, the Resolution Foundation has warned that 450,000 families in the UK are now behind on their mortgage or rent payments.  They say the situation is a crisis that is only going to get worse and therefore is going to take government intervention to solve. The government has extended the ban on landlords evicting tenants in payment arrears, but this doesn’t cover those behind by more than six months, which given we’re nearly a year into this,  plenty more people are now within this category.  The Foundation has urged Westminster to take the lead of the Scottish and Welsh governments who have set up loan schemes, which help the tenants, landlords and also capacity within the courts. The FT has the story.

Over in the US:  There’s a weather system forcing the electricity grid in 13 states to undergo rolling blackouts in a bid to preserve its integrity.  In Texas temperatures have reached as low as minus 18 and the whole of the central belt is suffering with cold not seen in decades.  The spike in electricity demand comes at the same time that electricity generation capacity has been lost, as power stations are forced to shut down or reduce output to manage the cold on their infrastructure.  This area is also responsible for a lot of the US’ gas and oil refineries, which are having to shut down and that in turn is seeing prices spike significantly.  The Washington Post has a good long read on the situation.

The growing voices pointing out inflation concerns over Joe Biden’s stimulus package have been put to bed by Janet Yellen.  The US Treasury secretary pointed to the majority of her career, which was spent trying to get inflation to move higher and that we’ve been through stimulus phases before where people were fearing spiralling costs, but that they never materialised.  The debate will rage on and only time will really tell, but This New York Times long read is well worth five minutes to get accustomed to both sides of the argument.

A geo-political test could be on the cards for Biden, as Iran has informed the IAEA of their plans to stop allowing snap inspections by the nuclear watchdog, unless other parties within the 2015 nuclear accord uphold their obligations.  This is a thinly veiled dig at the US who left the accord in 2018 under Trump and re-imposed sanctions on the country.  Joe Biden does plan to re-engage with the accord, but whether or not these words make him more or less inclined to do so will remain to be seen.

Looking at today:  The calendar is mainly European focussed, with the German ZEW index, Eurozone GDP and employment numbers and then in the US in the afternoon the Empire manufacturing survey – so potentially some market movers there.  We’re closing in on 4,000 for the S&P, which now the US is back from the President’s day market holiday, they might have a crack at that level if risk sentiment can remain

Be well.

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