Good morning,

Andy Haldane, The Bank of England’s glass half full, thinks the economy is set for a massive rebound in the second half of the year and that “a year from now growth could be in double digits”.  He points to the ‘accidental savings’ of around £250bn that some have been able to save whilst lockdown has limited spending options, that will be unleashed on the economy the moment we’re out of lockdown.  His words come as UK GDP numbers for the last quarter of 2020 showed growth of 1%.  This quarter is forecast to show a drop of more than 4% in GDP, but given it will likely stand in isolation won’t constitute a technical recession – a minor detail in the scheme of things, 4% is still a big loss, particularly on top of last year’s near 10% decline.

Michael Gove and European Commission VPO Maroš Šefčovič have agreed to work on practical “on the ground” solutions to the areas of friction in the Northern Ireland protocol.  Though they both remain locked in their positions with little sign of immediate compromise, the willingness on both sides dials down the temperature of the UK-EU relationship over the last couple of weeks.  They’ll reconvene before the end of this month to keep checks on the progress and make sure that no effort is spared in “implementing solutions mutually agreed on 17th December, as they form a foundation for our cooperation”, but this does feel like we’re witnessing a rock and a hard place try to agree on who moves first.

Other Brexit related news:  The volume of euro denominated swaps trades being carried out in London has fallen by 75%.  In summer last year the UK had 40% of the swaps market, but this has now fallen to just 10% in January, according to HIS Markit data.  Our loss hasn’t only been Europe’s gain though, as New York has managed to pick up a large slice of the action, as they have a financial services equivalence with the EU – something we’re not entirely sure we’re going to get, as we reported Andrew Bailey suggesting earlier in the week.

In Europe, Mario Draghi has got an overwhelming majority in parliament, as the 5 Star movement have now backed him.  The party conducted an online poll of its members and 60% of them voted to back Super Mario in creating a government of national unity.  To get the parties to agree to back him is one thing, to get the parties to agree to his policies is going to be quite another, given how polarised their political ideologies can be – the parties have backed him because it’s better to have a seat at the table than not, but how they use that seat will determine how effective Draghi’s government can be. Though with a €200bn war chest, the largest slice of the EU’s pandemic recovery fund, he in theory is in a reasonable place to have a very good go.  There’s an interesting biography on Mr Draghi, in Politico, which sheds light on the central banker’s political credentials.

Germany have mentioned the I word for the first time in years… they think inflation might actually be above target this year, as tax rises in the country will push the country to be above a 3% headline rate – which if it persists would have to be managed by changes to monetary policy.  Given that these policies are set at the ECB level and not on a per country basis, we might find ourselves back in a two-speed Europe situation and find the same tensions resurfacing from the 2011-2015 era where there was talk of Germany and other Northern European countries needing a different set of policies to the other euro denominated countries – something that clearly can’t work under the current system.  This isn’t one for the here and now, but we might find this coming back round sooner rather than later.

On the covid frontline:  Thousand of UK hospital patients are going to be given an anti-inflammatory drug that has been shown to reduce the risk of death and speed up recovery.  Tocilizumab is an arthritis drug that has proven effective in clinical trials and could be a massive boost to the NHS if it can take off some of the pressure.  Hospitalisations have fallen by 22% this week and if those in hospital can be discharged more swiftly then we really are moving in the right direction.  Case numbers are down 28% on the week and this isn’t just down to less people getting tested, which we’d feared that it might be.  However, daily cases remain above 13,000 and that is going to need to move a lot lower before the government lets us back out.

Across the Pond:  Today is the turn for Trump’s defense to lay out their case against impeachment.  Given their failings in opening statements, they’re going to have to radically up their game if they can convince the court of public opinion that he shouldn’t be impeached, but given the Senate will likely vote on party lines, it makes little difference.  There is a risk to Trump that instead of voting against impeachment, some Republicans just abstain – as the two thirds majority is required of those that vote – and the numbers fall against him.  If you’ve already completed Netflix, this could be your next box set.

Today’s data highlight was the UK GDP number, which has been and gone.  Therefore we’ve got a light day ahead and with tight currency ranges in play yesterday, we think it’s likely for more of the same today.  It’s Chinese Lunar New Year today, so a very happy New Year as we welcome the Year of the Ox.

Be well


* indicates required


Sign up to get our insights directly to your inbox

Sign up