Good Morning,

Vaccine hopes pushed US stock futures higher overnight, with Moderna saying that their vaccine produces coronavirus antibodies. The company reported in the New England Journal of Medicine that trials of the drug produced antibodies in all 45 of the patients in an early stage trial. Unsurprisingly their shares had a strong performance, posting a 15%+ increase. The hope is now that either this vaccine or one developed by Pfizer will be ready to roll out by the end of this year – and there ends the good news…

Trump has ended Hong Kong’s special status with the US and it will now be treated on exactly the same terms as China. The president had touted the move before and it comes as no surprise given how things have been deteriorating of late. The announcement will now mean a lot of Hong Kong companies trying to work out which side their bread is buttered and either relocating out of Hong Kong to try and keep their trade with the US out of the way of tariffs or, if they’re going to go down the China route, they might as well relocate into mainland China where its considerably cheaper.
China has promised to make the “necessary responses to protect its legitimate business interests”, which spells more downside for those wanting a free trade global economy.

Staying with Chinese relations: The UK did confirm yesterday that Huawei kit can’t be used in infrastructure going forward and any of their tech already in situ needs to be replaced by 2027. The Chinese ambassador to the UK has called the decision “disappointing and wrong” and has called into question whether the UK does provide an open and fair trading environment for foreign business. The pressure from the US to make this move was huge and the UK government will probably be feeling that they could do without being stuck between this rock and a hard place at the moment, as they’re trying hard to strike trade deals that make life outside of the EU a compelling proposition, from a trading and economic perspective.

Leo Varadkar, now deputy PM in Ireland, has said he sees the UK EU trade deal happening, but thinks it’s going to get done at the end of the year. This scuppers Boris’ hopes of a July deal done and also means from both sides that preparations need to continue for a no-deal, with great expenditure of time, energy and money in the process.

On the UK economy: Rishi Sunak is reviewing capital gains tax as a possible way to fund some of his coronavirus debts. The exchequer is likely to face falling CGT receipts anyway, as asset prices remain choppy and second home transactions are significantly lower than they would normally be. As such any increase may just mean that CGT income stays level in real terms, but if things do then pick up he’d be well placed to benefit. As well as potentially increasing the tax, the review will look at the offsets that people can use in calculating their CGT bill to reduce their payments.

Elsewhere, Tokyo has seen the number of cases of coronavirus rise to levels where they’re urging citizens not to leave the city and they’re considering lockdown measures. The authorities have not yet raised the alert level and taken direct actions, but they say that any further increases will lead to severe restrictions and are urging people to do their upmost to help stop things getting worse.
The Japanese central bank kept their policies on hold at their meeting this week, but reaffirmed their position that they’re ready to pump more money in without hesitation if conditions start to deteriorate. Their base case is that the economy starts to grow again in the back end of the year, but with their average GDP reading of just 0.46% over the last 40 years and their debt pile being the largest %age of GDP in the world, it’s unlikely that’s going to be a roaring comeback – though if your long term norm is anaemic growth and high debt, what’s a little bit less and a little bit more, respectively?
As an aside, there’s a great BBC article that talks about birth rates falling dramatically and that Japan by the end fo the century could have a population half the size that it is currently. This isn’t just a Japanese issue, it’s global and ageing populations and falling birth rates play havoc with public finances, as increased state expenditure to look after the elderly couple with lower tax incomes from a smaller working population – not a headache that any government wants.

Today we’ve already seen UK inflation numbers come out, with an annual increases in prices of 0.6% versus an expectation of 0.4% – this isn’t terrible, but what you don’t want to see is a trend of flatlining growth that we saw yesterday and rising inflation, as we’re seeing today, so let’s hope one of these two can sort itself out – preferably growth. Later in the day we get some US industrial data and also oil inventories. Yesterday the oil market rallied on the news that there was a much bigger drawdown on existing inventories than forecast, as well as news that OPEC is looking to make those nations that didn’t meet their production cut quotas to make up for the oversupply by reigning in future production. Stock markets have opened higher already in Europe, so we could be off to the races again.

Be well.

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