Good morning,

Talks between the US and China didn’t get off to a great start, as the diplomats took it in turns to air their grievances in public ahead of sitting down together.  Antony Blinken said that they would “discuss our deep concerns with actions by China, including in Xinjiang, Hong Kong, Taiwan, cyber attacks on the United States and economic coercion of our allies”.  His opposite number then called out America on using “its military force and financial hegemony to carry out long arm jurisdiction and suppress other countries… It abuses so-called notions of national security to obstruct normal trade exchanges and incite some countries to attack China”.  China might understandably have some grievances,  as on Wednesday the US took a few actions against various Chinese companies and updated some Hong Kong related sanctions, which wasn’t great timing if you want a positive dialogue the next day (though, we can’t imagine that timing being accidental either).

The market didn’t particularly like what it heard, and the S&P was down almost 1.5% on the day, despite the Fed effectively giving the greenlight for markets to keep on moving, with their monetary policy announcements.  In fact, as well as selling-off stocks, the market drove bond yields to their highest levels in a year yesterday, almost the opposite reaction of what you’d expect when a central bank says interest rates aren’t going to be going anywhere for the next 18-24 months.  There are no doubt multiple factors at play here, but it does look like the market doesn’t trust that the Fed will be able to sit on the sidelines if the economy takes off like a rocket and inflation starts to seem as though it might not be transitory.

In other diplomatic news, Putin has offered to talk with Joe Biden after the US president called him a killer.  There is a condition to the talks though; they have to be live and online without any delays, and for it to be an open and direct discussion! He’s suggested either today or Monday for the talks, but we can’t imagine Biden taking him up on the offer.  It’s likely the next time the US talks about Russia will be to announce retaliatory sanctions for election interference.

Those sanctions might well impact the EU, as they could go after more companies involved in the Nordstream 2 gas pipeline.  According to a Bloomberg article, they’re also weighing up going after the German entity that is running the project on behalf of the EU, which would be an incredibly difficult and politically sensitive (and therefore seemingly unlikely).  The US administration playing hardball with Russia is winning over Republicans though and Ted Cruz has lifted a hold that he had on two of Joe Biden’s nominees to senior positions as a result of the recent tough talk.

In Europe:  The EMA has said that the AZ vaccine is safe and jabs are set to resume immediately.  Separately, Paris is going into a four week lockdown to try and get the virus back under control as daily infection rates approach 40,000 across the country.  There are 16 regions in total going into lockdown, which comes into effect at midnight tonight.  The Kent strain of the virus is now estimated to account for 75% of total cases in the country.

Ford is having to halt production at two of its manufacturing plants due to the global chip shortage – one in Germany, the other in the US.  In other plants it’s going to continue the production line to a point and then hold onto the half-built cars until supplies arrive.  They’re forecasting a $1-2.5bn hit to their bottom line this year because of the disruption – and the breadth of that range shows the uncertainty around when things will get back to normal.

Looking to today:  We’ve already had the release of UK public borrowing, which shows another record high.  The government had to borrow £19.1 bn last month and the total debt pile is now £2.131 trillion – as a vague attempt at context:  If that was in £10 notes stacked one metre high on pallets it would cover about 20 Wembley sized football pitches.  Alternatively, if we could pay one pound of debt off each second of the day, we’d be back to zero in a little over 65,000 years (not accounting for interest!)
I think at this point it’s fair to say we’ve peaked, so on that note…

Have a great weekend.

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