The news we couldn’t escape for most of the weekend was the ‘will they – won’t they’ debate over lockdown restrictions being completely removed in three weeks’ time. The data show it’s probably a bad idea to go ahead as planned, but the politics is a different matter, with plenty of (presumably expert level virologist) politicians sure that vaccination has done its intended job and broken the link between infection and serious illness.  We fully expect this news to go on for the next couple of weeks, but the near term impact is that Sterling goes into this short week on the back foot both against the dollar and most of the crosses.

Germany is a different story, as Angela Merkel has confirmed that the special restrictions imposed by the state to deal with their second wave will expire on at the end of the month.  The state had basically overruled regional autonomy over managing the virus whilst the case load was high, but over the last few weeks they’ve come back down to about 35 cases per hundred thousand people and feel that’s a suitable level to let them roll off.  By comparison the current UK cases per 100k is 32.4,  Spain at 68.4 and France at 93.1.

Staying in Europe:  All 27 members of the EU have now approved the EU recovery scheme, which will allow the European Commission to go and tap the markets for mutualised debt.  The Commission will be responsible for raising €750bn from the markets and will take collective responsibility for the loans, meaning that countries with less favourable credit ratings will be able to borrow on similar terms to that of Germany.  The fund will be spent predominantly on infrastructure and environmental projects, which will hopefully be able to start quickly, as it has taken months for this to get off the ground, as all countries had to agree to the plan.  Spain and Italy are the biggest beneficiaries of the package, both getting around €70bn euros.  The EC will start approaching banks this week about the first raise.

Departing from Europe:  Brexit has cost the service sector £113bn over the three years following our decision to quit the EU, according to research from Aston university. They calculated what the export output would have been with businesses on their pre-vote trajectory versus how they actually performed and found a massive gap.  They didn’t include 2020 in the study because of the pandemic but do think that the trend of diminishing service exports could well accelerate once the pandemic’s influence fades, as companies will look to relocate once it is practical to do so.  The FT has the story.

The new leader of the DUP, Edwin Poots, has accused the EU of treating Northern Ireland as a ‘plaything’ and has said the UK government should consider triggering article 16, as the economic and societal damage being done under the protocol is significant, pointing to the recent violence in the country, which hasn’t been seen for years and is now present and a “that’s on the back of this protocol”.  The EU’s Maros Sefcovic has said that he and his colleagues are working flat out to try and resolve things and turn the protocol into an opportunity for trade.  Though he did say that one quick way to alleviate 80% of the problems would be for the UK and EU to reach a veterinary agreement, like the have with Switzerland which allows animals and animal products to move freely between the countries.

The ban on tenant evictions in the UK expired last night and it’s now a concern that hundreds of thousands of renters could be fast tracked out of their accommodation.  There is plenty of criticism being levelled at the government that they had spent more time helping home-owners than renters throughout the pandemic and that increase to universal credit and other benefits weren’t enough to avoid people either falling into arrears or accumulating large debts to pay rent, or both. The government is yet to come up with a plan to deal with what could be a huge problem for a million or so people – all they have said is that “evictions will not be carried out if a member of the home has covid-19 symptoms or is self-isolating.”

At the other end of the spectrum, the Bank of England have said that they’re carefully monitoring the housing boom and its contributions to rising inflation. As well as house prices rising through demand, the cost of building a house is set to soar as materials costs are likely to see double digit percentage increases, as supply chains aren’t able to keep up with the explosion in demand.  You don’t have to look too hard to find stories on prices increasing in just about every sector, yet the Bank of England – and every other central bank -are still confident this is transitory.  Here’s the BBC article on building material cost pressures.

From a market perspective, the week has got off to a rocky start, with markets that have been open generally trading lower.  There’s a lot to look forward to this week on the data front, so plenty of opportunity for the market to make up for lost time and opportunity.  The biggest data day is Friday, with non-farm payrolls out of the US the highlight.

Have a great week


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