MACRO UPDATE: Astra Vaccine, Brexit Deal, US Stimulus Agreement

Hello and hope you had a very Merry Christmas and looking forward to the New Year celebrations, even if they are at home. I know it's a bit of an unusual situation, but hope everyone has enjoyed the break. I know a lot of people have had some well-deserved kind of downtime over the last week or so, so I wanted to do a quite a short video bit of a macro update on really 3 key things that markets are really focused on, or were at least before we left, and that being Brexit, US stimulus, and of course COVID-19, the situation with the actual virus and the new variant, and also the latest with vaccines given some of the AstraZeneca news and the approval we've seen here in the UK earlier this week. So I'm going to get straight into it and talk about a couple of these things, and starting off with the COVID situation. And what I've put together here is an update, firstly looking in a bit more detail at the UK situation. And the reason why I think that's particularly important to look at is because this is where the new variant is said to have emanated from. And therefore, now that it is spreading globally, as I'm going to update you with some of the first cases being identified now just yesterday in the US, as well as in lots of other countries now, I think looking at how it's performing in the UK could act as a good indicator of how it might perform elsewhere, amongst other things. So let's get straight into it. I'm going to quickly run over some of the COBRA slides that the UK government issued yesterday, and I'll quickly go over this in short form just to get you fully up to speed if you haven't been keeping up to speed, you know, kind of day by day with these, these matters. So one of the main things here is how quickly over the last 2 weeks UK case rates have increased. They've in fact doubled in in the course of 14 days. And you can see here the difference between the 10th of December to the 24th of December. So even this data in itself is fairly dated now by a week or so. So things have definitely changed, and we've seen that, witnessed the restrictions change we've seen in the UK, uh, named this week. And so a couple of other things then, looking at the number of people going into hospital with COVID-19. Now this is kind of one of the more I guess, more concerned areas that we're looking at at the moment, given the fact that just generally from a seasonal perspective, these are tough months on the National Health Service, particularly in the UK over the course of January, February, given the temperature changes, slips and trips and things like that generally increase the number of accidents and so on. One of the main things here is breaking up the UK into different areas on a regional basis and looking at how the virus has really developed. And as we've known, in the Southeast and London in particular, and you can just really see this over how the number of people going to hospital has really rapidly increased in areas here in London, very sharply, whereas comparative to say Northern Ireland, Scotland has relatively plateaued at this point in time. The main thing here then is looking at a couple of different things. Here we're looking at the estimated number of people testing positive for COVID-19 in the community in England has continued to increase. So as a statistic, the number now is 1 in, in 70. Here you can see kind of two meaningful milestones in regards to the restrictions imparted by the UK government. National restrictions introduced in England on the 5th of November, and you can see here Shortly after that was adopted, we started to see a decrease in the number. However, soon as national restrictions were ended on the 2nd of December, that's when we started to see an acceleration. And throw into the mix there the, um, the introduction of this new variant of the virus. Now, the percentage testing positive of the new variant is increasing in almost every region in the UK. So when we start actually drilling down into these numbers although, as I just mentioned, it might look more severe in some areas like London and the Southeast. In fact, looking at the blue line, which is the new variant compatible against other variants, say, from the decreases that generally we're seeing in the original state of COVID-19, the blue line is moving higher across the entire country at this point. It's just that the acceleration is more evident in London, the Southeast, and the East of England. And the reason why then, in terms of that Tier 4 restriction levels, has graduated in from those areas to around the rest of the country. What this has led to then is this, um, the Tier 4, which is stay at home, is the black color. And you can see that pretty much dominates now the entire United Kingdom. We've had a number of changes The new fastest spreading strain of the virus has basically driven daily infection rates to a record level. More people hospitalized. Death— daily death rates are close to the peak that we saw in the first wave in the spring in the UK. The reopening of schools, as I'm sure you've read, has been delayed, and the government has said restrictions could be tightened further. So on this point, although cable on the FX market at the moment is kind of having this relief moment on the back of the conclusion of a fairly orderly, if I can call it that, compromise over Brexit to get the deal done, which has, which has happened now. We'll get to that in a moment in terms of the more finer details, but the, the unknowns here could be associated with, which could cap some of the Brexit upside relief for sterling on further national lockdowns that might become necessary for the UK government to adopt as we go into the first week of January, which is probably then where we're going to see the real tangible effect of the loosening, albeit over a shortened period than originally planned, of the Christmas restrictions. So something to be mindful of. I think definitely that could be something to look out for in the first week of January. Is a movement into much more onerous restrictions. The government has already kind of floated the idea of that being a possibility, of which of course it is. The likelihood of it happening, I think, is relatively high. And so, as I said, that could offset any of the short-term positivity in any upside movement in the pound. Doesn't mean necessarily that the pound can't go higher, it just means that any kind of breakaway beyond smashing through 140 could be a little bit more tougher than perhaps otherwise it might have been if the virus was, was more suppressed at this point in time. Um, having a look then elsewhere globally, I'm going to focus really on the main areas here being the UK and the US. Going to leave Europe for the moment and the rest of the world, but I'll comment a little bit more on that on the latter when we get to the vaccine conversation. But here, just having a look at the US, looking at cases, deaths, and hospitalizations. And in the US, a slower than expected vaccine rollout in the US may be about to be met by this new strain of the coronavirus. Officials in two states, Colorado and California, have said that they've now discovered cases of the more contagious variant. Which is said to have emanated from, from Britain. There's no evidence that the new variant makes people sicker, but it appears to be much more contagious, as we know, than the older form, some reports varying from around 50 to 70% in terms of its— how transmissible it is. So here, the interesting thing on these charts is the fact that case rates have, have come off their initial peak, but hospitalizations are continuing to increase. So again, this is one of the reasons why there could be beyond— the actual markets are very much focused on kind of deaths and vaccines, but there's, there's definitely going to be a more longer-term impact of what COVID-19 has had on other people receiving treatment for a whole variety of other medical diseases, that things that have otherwise had to be delayed in that respect. So I definitely think there's repercussions of this, and, and it really does show how necessary it is to have an effective rollout of the vaccine as we go forward into 2021. The other things looking at here are, as I said, COVID patients in hospitals in America, you know, well in excess— this is by day— of 100,000. That that steepness of that curve is flattening slightly, but it's still moving higher for the time being. And one of the things that the US is really quite different from the likes of mainland Europe is it really failed to suppress a lot of these rates in the earlier first and kind of the tri-state and Sunbelt outbreaks. The, the levels really never really dropped a considerable amount on the case front, which has meant that hospitalizations have resulted— have remained relatively high. And now, as you can see, we're double of what we were at any other point in time through 2020. So let's talk a little bit about the vaccines, because there's definitely things to be, to be talked about here, and time really is of the essence. And looking at America, this is a map looking at vaccines across America. I've got a couple of stats here that's worth bearing in mind as a bit of context around this idea of, of how quickly can inoculation of a population take place, which is obviously going to be imperative for the economic recovery to take hold. So here, vaccinations in the US began on December 14th with healthcare workers, uh, so obviously frontline workers being the ultimate priority here, and so far 3.05 million doses have been administered. According to state-by-state tally conducted by Bloomberg and cooperating that data with the CDC, the CDC, so the Center for Disease Control and Prevention. Across the US then, from a percentage point of view, that means that only 0.9% of the population have been vaccinated so far, and 25% of the shots distributed to states have been administered. And this is quite an interesting thing that I was reading about yesterday, and it was looking at the— a lot of these US states have been administered the drug, and in the US it's very much more a story of Pfizer, BioNTech, and Moderna's shots. But the amount that's been distributed is— well, the amount that's been distributed, I should say, is quite different from the amount that's been actually administered. And there's a few reasons why people have said that might be the case. Now, as you can see here, only around kind of an average of 20 to 25%— well, if you're looking at US totals, 24.6% of shots have been actually administered from what are actually available. So what— why has there been such a slow take-up of this if it is so important? Why isn't it just straight in there into the system to try and offset both the pandemic from a health consequence and also from the point of impact on the economy? Well, a couple of things. Officials are blaming a delicate vaccine with complex storage requirements. Remember, the US have gone quite full in to the Pfizer-BioNTech side of things, which one of the biggest pitfalls there is the ultra-cool storage that's necessary for that vaccine at -70°C. That has caused an incredible amount of difficulties. Uncertainty over the supply of doses. So remember, a lot of these are two-shot processes, or nearly all of them are, including AstraZeneca, which we'll talk about in a moment. And then the other things are local health agencies already facing historic challenges at the moment. Remember, seasonally as well, there's a lot of constraints on available staffing. So there's a combination of different things. And then also the idea that some people are still a little bit skittish about the safetiness of the actual vaccine in itself, whether rightly or wrongly, and influenced by many other different forces, perhaps online. People are a little bit apprehensive of being the first ones to take the shot. So there's a number of things here at play, I think, in America, which is impeding at the moment a little bit of the uptake, whether it's a, an actual function of the vaccine, which I think was always the problematic thing about Pfizer and their particular drug and technology that they were using. And then also the actual willingness and the ability to roll out this vaccine is what's always been challenging. We've always talked about, which ultimately is going to be something you're going to have to monitor to how quickly then the government can hit its targets. Now, the US is managing state allocations of the Pfizer-BioNTech vaccine as well as Moderna's shot with the goal of getting 20 million doses distributed by early January. However, I can tell you now that that's, that's not going to be met. The US administration has even come out and admitted so. Remember, so far they've only done 3 million. They're talking about doing another 17 million by the end of January. It's highly unlikely that that's going to happen. So they're already missing their targets. Yeah, so this is something to be aware of, particularly now, I think, in America, that in Colorado and California, this new variant of the virus has been identified. So all those case rates are just off the highs. Hospitalizations are elevated, so a re-acceleration of cases in an already stretched infrastructure to deal with this, with the difficulties in rolling out what is quite a sophisticated vaccine in the case of Pfizer, I think could be problematic to people's timelines about the adoption of this virus. To give you an idea Although it's probably a little bit dated, I was listening to Anthony Fauci, the medical expert in the US. He was on speaking on the news a few days ago, and he was talking about this idea of looking at kind of into early Q2 for when people could start this phase in coming back to work in America, and then a degree of normality happening where people can go about more normal activities perhaps not happening until the fall. So we're looking at a full 2021 narrative here with the vaccine, and, and certainly the more acute point of that for financial markets is going to be early in the year. So definitely January, where we're going to get more of an idea about how, how well this whole rollout vaccination program is functioning. So a couple of other things here to be aware of. I'm going to go through a few more slides. One of the other main pieces of news you probably heard of just a few days ago is AstraZeneca So AstraZeneca and the University of Oxford, their vaccine won UK clearance. Now there's been a lot of, um, coverage about the authenticity of their results, about what happened with this half shot, double shot, and so on. The efficacy rate not quite as high originally as what we were seeing as some of the other firms like Pfizer and Moderna. But a couple of things here that I think are very important. Um, one is firstly, what's the situation in the UK? Well, now that they've given it a UK clearance, the vaccine will be prioritized for the country's most vulnerable groups. So the shots are going to start on the 4th of January, so Monday, according to the government. Their two-dose shot is the early leader in terms of pre-purchase agreements, and that's what I'm looking at here on the left-hand side. You might have seen me tweeting about this a few days ago. At the moment, pre-purchase agreements from the Astra vaccine would cover around 1.46 billion people. That's more than twice as much as their nearest competitor. And if you actually look at it here, this graph— I've already just taken a snippet of the top of it— you can see here the distribution goes far and wide, selling or producing this at cost. So there's a number of, uh, benefits here, um, that are much better in favor of Astra comparative to the others. Doesn't have that situation of the storage, um, it's being done at cost, which means it can be distributed to third world nations as well. It's a lot more affordable. Those that lack infrastructure, obviously it can be just stored in a normal refrigeration unit makes it more usable in those types of conditions. The other things are AstraZeneca has generally much better manufacturing capability than someone like Moderna, for example. They've also got very strong distribution networks globally as well, unlike Pfizer, which is more North American focused. So there's a lot going here of positive, actually, reasons for for markets to be up at the moment. You know, you've had two— you've had a couple of big risks here, coronavirus, but now you've got Astra coming in. And Astra, I really do think, is a bit of a game changer. We still need to await a little bit more definitive details about some of the studies that are happening at the moment about its efficacy rate, and particularly with all the vaccines on the new variant. But overall, the Astra one is so much more, uh, could be adopted on a worldwide basis, which is ultimately quite key for eradicating the virus on a global level, um, in that respect. So that, taking care of the virus, you've had a stimulus deal done in the US, you've had a Brexit deal done, and hence the reason why equity markets are finishing the year on generally at some of the highest levels on record when we're looking at the US. Um, you know, oil markets trading at a 48 handle. You know, I think all of these are warranted for this point in time, but as I've just discussed with some of the UK situation with COVID there's a lot of things you still need to monitor for now. So here you can see the UK has agreed to buy more than 350 million doses of COVID-19 shots, but AstraZeneca heavily is the one of which they've invested in at this point in time. The government in the UK is aiming for 2 million people to receive their first dose of either the Oxford vaccine or the Pfizer jab within a fortnight, um, as part of a major ramping up of the inoculation program. Now that is quite important. Um, the UK Health Secretary Matt Hancock has come out and said the AstraZeneca shot added into the mix the country will be through the COVID crisis by the spring. I think Matt Hancock's got a political death wish by making such statements like that. I find that incredibly irresponsible to kind of put that date on there, but therefore he's a politician, so he plays a different, you know, he's playing to a different beat. He needs to make sure that the government's looking proactive. But leaving all of that aside, You know, we're not going to be through the COVID crisis by the spring, I can tell you that now. But the point being is, is that the AstraZeneca shot compounds then hugely the impact then of the inoculation programs because it has much larger distribution potential than some of the other vaccines that have been the front runners like Pfizer and Moderna. Astra is really the potential game changer here. The other thing I thought was quite interesting was BioNTech. Their CEO was speaking about a week ago, and he was quite bullish when questioned when this new variant was coming to the forefront, that his vaccine would still be, still be valid, would still be effective. But one of the things I thought was interesting, he said that if needed, they could be able to provide a new vaccine technically within 6 weeks. Now, whether that is achievable or not, whether that is just a company CEO talking their book, read of it what you will. But again, I think the market might take some assurance out of that, that, look, at the moment I think there's still really concrete evidence, uh, still yet to come out in regards to this new variant, which of course is mutating all of the time, and whether the vaccine is still going to be efficient. Our assumption is it will at this point, but that needs to be tracked, of course. But if they can, you know, this isn't about going back to square one. They already are equipped now with better knowledge now than we had 9 months ago or 10 months ago. So it wouldn't like be going all the way back to the beginning. If they could turn it around in 6 weeks, well then I think that's a massive positive in that sense. And again, helps to underpin and support, say, global equity valuations on one of these major macro risks at the moment. Um, here's just looking at the global vaccine— vaccination campaign. So as I said, less than 1% of the US population have received the vaccine at this point in time. That's not forgetting that, of course, there's a two-shot system with this. So most of these people are only receiving the first part so far. China, obviously hugely insignificant at this point in time. I mean, for China, to give you up to speed, they have given conditional approval for the first general use of a locally made COVID-19 vaccine, paving the way for distribution both home and abroad. The National Medical Products Administration in China said the regulator had agreed to a public release of vaccines developed by Sinopharm, a state-owned pharmaceutical company The approval there was after Sinopharm said the drug had achieved a 79% efficacy rate in late-stage clinical trials. Medical experts, though, such as the way the Western world views a lot of information that comes out of China, a little bit skeptical because they've warned that the data, things like the efficacy rates and the trial data, has had a lack of independent oversight of that clinical data, loopholes in test design have undermined the vaccine's effectiveness. The only countries that have adopted that Chinese vaccine so far are the UAE and Bahrain, but I don't know for sure. But one would make the assumption then that there's probably some kind of tie toward the investment and trade between those two countries as to why probably they've adopted the Chinese vaccine more than others. I would imagine. Perhaps I'm wrong. Um, all right, well, look, let's move on. That's enough of, uh, hopefully that's got you up to speed generally of where we are at the moment with the vaccine situation. So the rest is going to be very brief because it's predominantly very much based on that as the main theme still in markets, and probably still will be when we come back to doing the morning, uh, normal morning briefings on Monday. So Brexit What exactly is happening? Well, finally, finally, a deal, as expected. You know, if you've been watching the briefings that I do, you know, this was my kind of base case view for a number of months, that it was really between mid to late Dec we'd get a deal. And we've arrived at a future relationship bill with the EU being agreed yesterday. So That happened yesterday. That's brought then this new bill into UK law. It was backed by the House of Commons of a vote of 521 to 73 on Wednesday, um, after Parliament and MPs were recalled after Christmas break. It's been also ratified by the EU. Now here's a look at the pound. The pound has had a, what I would classify as a light relief rally. On confirmation of this. Definitely, it removes for sure now the kind of worst-case disorderly no-Brexit situation. That now is off the table. And but the, the, the relief fairly contained. And the main reason for that is that if you actually look from where we were really going through October, December, the pound was already moving higher. You know, me making a call that the deal would come in that time frame, being right is really not that impressive because it was as expected, really. Um, I, I think that compromises were always going to come on both sides, and seemingly that, that is what has happened. As I said, the upside for this currency pair— can it continue going higher? Yes, it can. Uh, technically, obviously, good round targets at 140. A break above there gets us then looking up at 145 and above, but One, in the short term, I think we've really got to be conscious of the fact that some of that might be capped on the upside by increasingly onerous restrictions being imparted in the UK and wider Great Britain as that new variant continues to see quite an acceleration in cases. What actually happens— I'm filming this and in just a few hours' time actually before you crack open the champagne for New Year. Britain then officially— Brexit is kind of done at this point, although definitely not over. So a couple of things are going to change. The trade deal then between Boris Johnson and the EU chiefs avoids the need for import taxes and tariffs, which many businesses had feared, but there will still be major changes to rules on travel, immigration, commerce, living and working abroad. The UK police will lose instant access to EU-wide databases on criminal records, things of that nature. And one of the, the main things here that was really not so evident in this deal, which is why there's still a lot of work to go on behind closed doors is the area of services, and particularly things like financial services and so on, which even the UK government admitted themselves was very light touch in terms of its details. So the next steps here are: on the 1st of January, the Brexit transition period officially ends. The trade deal will have taken provisional effect to pending on the full approval of European Parliament. Remember, this was that idea then that there's kind of a grace period, if you like, before then it gets ratified, probably more like in February. So then the European Parliament will analyze now the terms of the agreement. Its separate committees on trade and foreign affairs will offer their opinions in a final vote, likely to be in early Feb. One important thing here is MEPs will need to give their consent to the deal being an EU-only accord, which means it does not need ratification in national member state parliaments. They are, these MEPs, expected to vote overwhelmingly in favor of the deal. But as I said, there's still quite a few things here to muddle through on the, particularly the service sector side of things, which obviously is incredibly important for the UK. How much of this as a real tangible impact are we gonna feel? I guess we're gonna know in another day's time and once it's bedded in in beginning of January. Of what that looks like. But for the moment, the market, and rightly so, fairly calm in nature for the time being, uh, and I would expect that to be and to remain the case. And then the last thing I wanted to talk about, just to wrap things up, is the US stimulus situation. Um, the Republican Senate Majority Leader Mitch McConnell has rejected a proposal for increasing US stimulus payments to $2,000 per person. Remember, Trump was calling for that maybe 2 weeks ago. I said at the time that this is purely a tactical play in a, in a way for Trump to frame then, given his departure soon from the White House, that he made every attempt to kind of help the common man by more than doubling up from the $600 kind of stimulus paycheck to $2,000 supporting the Democrats in this case, and it's his own party that's let him down. I absolutely never expected $2,000 to go through. The $900 billion economic relief package has been signed by Trump already. It means that the means-tested $600 paychecks goes out for adults. But again, Mitch McConnell, who will retain the upper chamber of Congress for another 2 years if Republicans win at least one of the Senate runoff elections in Georgia next week, has continued to resist this pressure. So for the moment, I think most importantly, a deal has been done. For now, I think this is more of a good short-term stopgap, but as Biden was calling for a few weeks ago, more stimulus is probably going to be necessary. The interesting thing there is that Georgia Senate runoff, because if Republicans don't win there and we do then change to a blue wave situation, then that could be quite meaningful in terms of the stimulus side of things. Because as I said, the Democrats have been more aligned for more beefier ways of, of helping people with these stimulus checks, and that would have repercussions then for the likes of the economy. But I don't see that happening. I see the Senate being held by the Republicans. That means McConnell is still going to be the biggest thorn in the government's side to play down these types of, these situations at the moment. So overall then, just summarizing everything I've covered, there's been some positive developments for sure, and I think that's what's led to a relatively stable market going into year-end. So any fear of a kind of end-of-year spillover in markets creating volatility has not happened. We've had a Brexit deal, we've had a US stimulus deal, albeit more is needed, and albeit on Brexit more details are needed on the service sector. But in the short term, relief. You've had AstraZeneca come out, and as we've discussed, could be a potential game changer for many different reasons. And as such, then the markets are taking that as a positive signal despite still the general worsening of the COVID situation under this new variant we're seeing in many places around the world at this point in time. So there's a couple of things here to be optimistic about. There's a couple of things to definitely monitor. There's a couple of things that if they were to change could well be meaningful for sure for markets and particularly I think the main focal point as we go into the reopening, when everyone comes back from their Christmas turkey and they've had their New Year hangover gone, then the focus is still very much going to be on COVID-19 and the vaccine. So things haven't really moved on a great deal. A lot of the emphasis, if anything, is going to increase on that subject matter, given the fact that short-term things like Brexit and US stimulus have been resolved, at least for the time being. All right, I'm gonna leave it at that. I know fairly lengthy, but wanted to cover a lot of things there in a bit more detail. Hope it was useful. Um, again, I hope you've had a really good break. If you're watching this on YouTube, don't forget to hit that thumbs up, help the algorithm, uh, help our community grow, and then subscribe to the channel. And then I'll see the guys at Amplify Live on the live stream Monday morning as usual. Okay, take care guys and enjoy the New Year celebrations tonight.