HC-AM Morning Report - Bring-your-own-Backlash

Bring-your-own-Backlash

Tuesday 11th?January 2022

Good Morning?,

Here are this morning's headlines:

UK Government- While the red and green benches of Westminster lay unoccupied, and backbenchers navigated their way around the concept of the zoom mute settings, Downing Street’s garden benches played host to Boris’ “bring-your-own-booze” soirée. Yesterday evening, an email sent by a senior civil servant and Johnson's principal private secretary, Martin Reynolds was leaked to ITV News with the subject header detailing "Socially Distanced Drinks! [OFFICIAL-SENSITIVE-No 10 ONLY]". The email, written on 20th?May 2020, is reported to have been sent to around 100 staff members with witnesses describing around 30 attendees – not least Johnson himself – while the nation was subject to lockdown restrictions. Around fifty minutes before the party, Oliver Dowden headed the coronavirus briefing address to the nation, informing us that 363 people had died with Covid the previous day. This party is the latest revelation in allegations that Downing Street repeatedly broke covid restrictions, reinforcing the executives’ commitment to the age-old idiom “do as I say, not as I do”. The Telegraph is reporting that a former parliamentary standards chief said that it is "extremely unlikely" that Boris Johnson would not have approved the party. Hence, in light of yesterday’s developments the Metropolitan Police confirmed it was “in touch with the Cabinet Office” and there will be calls on all sides of the political spectrum to extend the inquiry currently under way by Sue Gray.?No doubt yesterday’s headlines will have further developments throughout the coming days and weeks and amongst other things will see increasingly disgruntled Tory backbenchers question the consistency of Johnson and his prevailing coronavirus policy.?Another question that springs to mind is ‘what else has Dominic Cummings got up his sleeve’?

Italy- Italy is about undertake presidential elections and it seems fairly unsurprising that the man that can be largely credited with getting them through the pandemic and onto a better economic footing might be vying for the job. Mario Draghi stepped into role of Prime Minister at the request of the president in February of last year and quickly got down to work at a local, national, and supranational level, to great effect. Since then, Italian politics has been quieter than it has been for a long time, but now it appears his influence at the head of the coalition government might be starting to wane and a new challenge might be piquing his interest. President Mattarella’s current term expires next month and if Draghi were to land the job it would be a huge sigh of relief for markets, as the president can play an active role in shaping government, choosing his successor as Prime Minister and hopefully keep the recovery on track and still qualifying for EU bailout funds. Understandably, Draghi won’t be drawn on the issue but commentators are even suggesting that his approach to compromise within parliament (rather than listen intently but ultimately go it alone) is a signal that he wants to keep as many allies as possible in parliament, as these are the peers that would vote him into power.

JP Morgan- “We’re going to have the best growth we’ve ever had this year, I think since maybe sometime after the Great Depression”. This optimistic tone was struck by JP Morgan CEO Jamie Dimon yesterday in an interview with CNBC, where he also prophesised that the Fed might even raise rates more than the four times that some banks are forecasting them to. He doesn’t see this as a problem though, as the US consumer is spending 25% more than they were pre-pandemic and that their debt service levels (how readily they’re paying back loans) is as good as it’s been for the last 50 years. Its not all roses for the CEO though, as he predicts markets are going to have a bumpy ride as they adjust to a higher rate environment and investors make moves away from equities, which have been the only generator of real returns for many years.

Barkin- Staying on theme: Richmond Fed president Barkin has said a March rate rise is “conceivable” and Fed chair Jerome Powell is set to testify at a Senate banking committee hearing today, where he will talk about what the bank can do to tackle inflation, which data due on Wednesday could show has reached as high as seven percent. Short of raising rates and winding down asset purchases, we cant see that there’s much more that the Fed can do and it really rests upon supply chains to improve and for Americans to return to the labour market for price pressures to ease, but?if?the Fed can navigate a soft landing and?if?we do see growth continue then Joe Biden might just prevent this years’ mid-term elections turning into another protest vote.

Russia & US- Yesterday saw delegates from Russia, the US and the Organization for Security and Cooperation in Europe (OSCE) gather in Geneva to address the Ukrainian crisis.?Moscow is growing increasingly agitated at NATO’s sphere of influence expanding eastward and encompassing Ukraine. Moreover, Moscow has expressed concern over NATO’s military build-up the Baltic states and Poland. On the contrary, the US and NATO are concerned at a build-up of Russian forces on the Ukrainian border and intelligence that posits Russia’s potential invasion of Ukraine.?While both sides are keen to pursue diplomatic options, neither party were fully optimistic going into Geneva. For example, US Secretary of State Antony Blinken said that “I don’t think we’ll see any breakthrough in the coming week” while Russian officials have been?equally?cynical. In a similar vein to the response to the Russian invasion of Crimea in 2014, the West are likely to consider sanctions on the Russian financial sector. For example, former U.S. Treasury Department official Brian O’Toole speculated that in the event of?heightening?tensions, the US could first restrict the VEB (the large Russian Development Bank which is used by many in the heart of the Kremlin) before looking further to banks such as Sberbank which would hit Russian consumers. Of course, as mentioned in yesterday’s report one of the most debilitating financial sanctions might include removing Russia from SWIFT – effectively preventing all international transactions there. Despite the multilateral nature of the talks, there is one notable country which has not yet been privy to the discussions, Ukraine – which will only have a seat at Thursday’s OSCE meeting, illustrating how the stability of its future is to a great extent still subject to the realpolitik of?Moscow and Washington.

?Looking Ahead- Today is a relatively quiet data day and markets aren’t moving too much as we get underway. One exception to that is the London Metals Exchange, which at the time of writing is wrestling with power outages and disruption to trading as a result (you’d hope that will be quickly rectified with a well-trodden work from home policy given the last two years!)

?Have a great day.

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