Basic tax rises will not be allowed in the upcoming budget

As he prepares to present his budget to Parliament, Chancellor Rishi Sunak has been forced to accept that the manifesto pledge from the December 2019 election on tax will not be broken.

The Conservative Party promised that there will be a triple-lock on taxation meaning the income tax, national insurance and Value added tax will not be increased for five years.

Sunak had been considering invoking legislation to change the pledge since the country is in the middle of a financial crisis that could not possibly have been foreseen at the time.

However, the Prime Minister firmly believes that maintaining the Government’s credibility is more important than how long it will take for public spending to be brought under control.

Johnson has made a further pledge as the country begins to emerge from the Pandemic. After ten years of austerity, he has promised that there will be no cuts to public services in an effort to balance the books.

The rumblings that started over the delays at UK ports brought about by Brexit are beginning to get louder as Johnson’s excuse that they are merely teething problems sounds less convincing every day.

The Cabinet Secretary has also attempted to reassure exporters and hauliers in the wake of the fiasco over Brussels attempt to invoke a clause in the Brexit agreement that would have led to a hard border between the Republic of Ireland and the Nationalist North of the island.

It was felt in many areas of business that there would be issues with the agreement, and as time goes on several loopholes and seemingly minor issues are building up.

For example, the EU has now decided that UK shellfish sales are banned because of restrictions on the import of live animals unless they have been through a processing plant that makes the trade non-viable.

The Bank of England’s rate setting Monetary Policy begins its first meeting of the year today and it will conclude on Thursday with a decision on interest rates.

The discussion over a move to negative rates likely to be inconclusive.

There have been demands from banks that they should be involved in the decision since it would have a significant effect on their business models and profitability.

As the rollout of vaccinations continues with well in excess of ten million jabs having been given, it is now virtually certain that the Bank will defer a decision until its next meeting in order to see how rapidly the economy can recover.

Yesterday, Sterling was virtually unchanged versus the dollar on the day. It failed in an attempt to rise above the 1.3720 resistance and closed within a single pip of its opening level at 1.3659.

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Idiotic behaviour in stock markets doesn’t merit a response

Jerome Powell and his colleagues on the FOMC have discussed the issues that are currently affecting equity markets and have decided that such behaviour barely warrants their attention.

One FOMC member, Neel Kashkari, the San Francisco Fed President commented that it is no more than a squabble between two sets of investors.

The battle between investors egged on by social media platform Reddit and the traditional Wall Street banks is showing signs of subsiding although attention is turning to precious metals with silver starting to see a rise in action and volatility.

Market analysts and commentators are now beginning to believe that there will be no change in official interest rates this year as the Fed remains sanguine about inflation.

The current makeup of the committee points strongly to a dovish outlook and Chairman Jerome Powell has already given the most advanced of advance guidance of his intentions.

One area where the U.S. is likely to see a challenge in the coming weeks or months is in the area of currency strength and proposed selling, some of which is already beginning to take place, by Central Banks.

The dollar is the province of Janet Yellen, the new Treasury Secretary.

In her time as Chairman of the Fed, Yellen was a strong supporter of the strong dollar policy. In her new role she no longer holds that view. This has been criticised by politicians who are concerned about inflation. However, afteryears of what the previous administration labelled being taken advantage of, the dollar index has been allowed to tumble.

Now, where the Treasury used to threaten countries who sold their currency on the open market to improve the competitiveness of their exports with the label of currency manipulator, that no longer holds the weight it did.

This has not, so far, spread into the major or G7 world but Israel, Chile and Sweden have already announced their intentions in advance.

Just what the U.S. will do if such actions become widespread or affect its. competitiveness remains to be seen but such actions are sure to increase volatility and shake traders out of their recent tauper.

Yesterday, the dollar index attempted another rally but selling interest around 91.20 saw it retreat back to close where it had opened, at 9104. The index now seems comfortable above 90.80 and this may be the start of a sustained rally which may encourage a little verbal intervention.

Von der Leyen refuses to apologize

How not to escape a self-dug hole.

Ursula von der Leyen has been the focus of anger from the rest of the EU member states as she has presided over the vaccine fiasco.

However, it is clear that she does not subscribe to the views of the former U.S. Harry S. Truman who had a sign on his desk stating that the buck stops here.

While Ms von der Leyen is not the only leader in recent history not to subscribe to such sentiments, it is obvious that she either lacks or has no time for a sense of subtlety.

She has refused point blank to resign from her role as EU Commission President, commenting that she should only be judged on her performance over the entirety of her time in office. This has three more years to run.

She obviously feels the love from her major supporter and sponsor, Angela Merkel. Merkel forsook Germany’s opportunity to provide the next President of the ECB in order to have a German EU President and the two have been close throughout their careers.

However, although Merkel will, no doubt, exert some influence from the shadows once she leaves office in the Autumn, she may not be in a position to support her protege.

This is a story that spills over into the rest of Europe, the UK in particular, and the negotiations that are still to take place over financial services together with ironing out several wrinkles in the agreement may have seen a shift in their dynamic.

Data released yesterday showed that the Eurozone fell back into recession in the fourth quarter of 2020.

The so-called double-dip recession came as no surprise as the economy contracted by 5.1% YoY and the QoQ recovery in Q3 was quickly extinguished.

With the rollout of vaccinations still a concern and lockdowns unlikely to be removed for some weeks, it is probable that the recession will continue into this year.

Yesterday, the single currency fell back to a low of 1.2011 versus the dollar, closing at 1.2037. Price action yesterday showed that traders are not yet ready to grapple with support between 1.1980 and.1.2000.