Morning Brief – Question; What will be the biggest benefit to the EU economy in 2021/2022?

Question; What will be the biggest benefit to the EU economy in 2021/2022?

Most people will answer that it will be the measures taken by the European Central Bank and their PEPP or Pandemic Emergency Purchase Plan which allows the printing of money thereby injecting liquidity into the European markets. The correct answer is POTUS Joe Biden’s U.S. stimulus package which will accelerate growth in the US economy by 6.5% in 2021 and on into 2022. This US growth will mean more imports of European goods into the USA and will also put upward pressure on the USD which then acts as a monetary stimulus in Europe making European exports more competitive. Strength in the US economy will also widen the spread in interest rates between the USA and Europe which will depress the Euro and result in global commodity prices rising in Euro terms. The result of all this is that it will increase inflation (appropriately) in Europe where the ECB has failed.

Biggest Fear for 2021?

Fund Managers polled, have replaced Covid as their biggest fear with Inflation. This may sound counter intuitive given that markets are looking for the European markets for example to create inflation, but that fear is as a result of the size of the US stimulus package and what that means for global markets. With 10 Year US Treasury yields around 1.6%, it is estimated that should those yields increase to 2%, it will result in a sell off in the Equity markets of between 10 and 20%. That is why markets are taking an even keener interest in the Fed Open Market Committee’s release this week despite the Fed President having indicated beforehand that they will keep interest rates low to nurture the recovery. However the thinking is that that may go out of the window if indeed that stimulus package fuels a sharp rise in inflation.

Cardboard

Another example of a vibrant market- which we do not normally comment on: cardboard. At the beginning of 2020 price per tonne of cardboard was GBP10. By the beginning of 2021 that had risen to GBP 118 and now is trading as high as GBP140-150. The reasons behind this are firstly the shift to the Amazon economy with shopping being done on line and requiring packaging, and secondly border disruptions due to Brexit and Covid which has resulted in stockpiling of goods. The thinking is that the price of cardboard will decline sharply once non-essential shops re-open post LockDown. However, on line shopping is here to stay so do not expect a reversion to GBP10 any time soon. Meanwhile hang on to any decent cardboard boxes for re-use.

Bee Gees

It was this day in 1968 that the Bee Gees appeared on the USA’s Ed Sullivan Show and sang what was to become a mega hit for them:

Words:

Smile an everlasting smile
A smile can bring you near to me
Don’t ever let me find you down
‘Cause that would bring a tear to me

This world has lost its glory
Let’s start a brand new story now, my love
Right now, there’ll be no other time
And I can show you how, my love

Talk in everlasting words
And dedicate them all to me
And I will give you all my life
I’m here if you should call to me

You think that I don’t even mean
A single word I say
It’s only words and words are all I have
To take your heart away

You think that I don’t even mean
A single word I say
It’s only words and words are all I have
To take your heart away
It’s only words and words are all I have
To take your heart away

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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