Matthew: Hello everybody, and welcome once again to another edition of Under the Macroscope, our weekly catchup with Skybound Capital’s Chief Strategist based in the London office, Jabir Sardharwalla. We talk macro views, things that are affecting economies and markets around the world. Coming up on today’s podcast, we will be talking about some highlights from the recently presented U.K. budget. Then, we’re going to be talking about some Brexit problems, fancy that, and then some T-cell immunity discovered to be the result of the Pfizer and Moderna vaccines. That news is coming out of the U.S.
On the subject of vaccines, we will start in Europe and Jabir; quite a significant development in the last week is the backtracking from European governments around the AstraZeneca vaccine.
Jabir: Hi Matt, and that’s absolutely right. We started about two days ago with the French giving approval for the Oxford AstraZeneca vaccine to be given to the over 65-year-olds, bearing in mind that they had put a pause on it before. Then just today, I saw that Germany had done the very same. It’s clearly spreading across Europe. All I can think is what a shame because this was a vaccine that the European drug regulator actually approved at a very early stage, and they said, “We think it’s perfectly fine to give to the over 18-year-olds.” However, for reasons best known to themselves, individual governments argued that there wasn’t enough evidence of proof that it worked. It’s almost a bit conspiratorial in a way. Anyway, it is what it is. It also goes a long way to explaining why Europe is so badly behind on its vaccine program. France has only distributed something like 24% of its a one a bit million stock of Oxford AstraZeneca vaccines. Hopefully, they can start to pick up on the back of this, but they’ve got a long way to go.
Matthew: And for good reason. Vaccines and vaccine rollout programs have been core components of our podcast in recent weeks because they have such a tangible effect on economies globally. So let’s hop across the Atlantic and talk about the Pfizer Moderna vaccine. News coming out of the U.S. there, again, very positive with regard to T-cell immunity.
Jabir: That’s right. Yes, this came out this week based on a scientific study that they’ve been doing of people who have received the different doses. It shows that there’s a good production of T-cells, which are proving very effective in the fight against, particularly the as it’s come to known the South African and Brazilian variants, which is wonderful news. I hope this is taken further quickly to help ease the angst that exists amongst so many people in terms of whether the vaccines are effective against those particular strains. It’s looking like they are. This is on top of all the other good news that we’ve had. For instance, we know now that whereas in the beginning, people were saying you have to leave it three weeks between the first and the second dose. Then they started saying that you can leave it for up to three months. Now they’re saying you can leave it at least three months, which is what helps to facilitate more people being vaccinated.
Matthew: Jabir, can we in future refer to the variant first discovered by South African scientists instead of the South African variant?
Jabir: I agree.
Matthew: For our South African listeners to the podcast.
Jabir: Likewise with the Kent virus.
Matthew: Exactly. Closer to home for you, and it was always going to be a big focus of the past week, the delivery of the budget in the U.K. What are the highlights for you there?
Jabir: Many. It was actually quite an action-packed budget if you break it down into its different components. First of all, big, big support for the Covid-19 vaccination rollout or the extension of, as well as and for me much more interestingly around the financial support for further clinical trial and scientific support packages. In particular, the government wanted to get in place an incentive program that helps us to fight this as and when it reoccurs and to improve the process by which we can get the whole genome side done and dusted quickly and effectively, which I think is absolutely the right thing to do. The support package there comes close to £2 billion, which is quite a sizable figure.
In addition to that, and perhaps the biggest component of the budget, is a very wide range of measures aimed at protecting jobs and livelihoods. The furlough scheme has been extended to September now. It was due to expire at the end of next month.
Interestingly and one of the key highlights, I won’t go into all of them, but the duties on home buying have been extended. So I think you can expect a big surge in home prices to continue, possibly get even higher. That involves assistance with deposits, which I think is a fantastic idea. They’re really committed to helping people move into houses. It should feed through into the construction site of the economy.
A range of initiatives aimed at strengthening public finances. One of them, controversial and we’ll have to see whether it gets through Parliament because there is a body there that’s against this within the conservative ranks, I might add. The Chancellor wants to raise corporation taxes to 25% from 2023. Currently, the rates are 19%. Now, as you’re probably aware, there’s been a lot of debate, probably globally, around — do higher taxes disincentivize or do lower taxes help stimulate more tax receipts? I think the key thing here is that it won’t come into effect until 2023, and it only applies to large companies, not the smaller ones. That’s actually a very significant point to make there. If businesses are making profits less than £50,000 a year, they remain at 19%.
Also a big boost to investment-led recovery. In a nutshell, I remember many years ago we had something called Capital Allowances. You could claim a very sizable portion back from the government for investing in new plants and equipment. Well, effectively, he’s done the same again here, 25%. So that’s clearly a move at trying to modernize our factories and industries, which I think is a great step.
Last but not least, various initiatives extend beyond England, beyond the English borders. So, covering Scotland, Wales, and Northern Ireland. It’s a range of things aimed at trying to prop up companies, which has obviously had its spinoff issues recently and the way grants are actually made across the country. Many years ago, under Lord Barnett, there was what came to be known as the Barnett Formulae for how much support is given per head of population across the British Isles. This is something that the Chancellor addressed in this budget. Aside from that, supporting companies.
Matthew: I’m glad you raised the issue of Northern Ireland because it links seamlessly into another piece of news: England has behaved less than positively around the flow of goods to Northern Ireland in terms of Brexit agreements.
Jabir: That’s right. It’s not really something you would associate with playing cricket. If you look at the British approach, typically, I mean this was very evident under Theresa May and also her predecessors, until I suspect when you go back to the late Margaret Thatcher. One E.U. official said that the new approach by the British government is very clear. It’s confrontation. This is not the first time, it’s actually the second time, and it’s over the same subject matter, Northern Ireland. In reaching a Brexit deal, it was agreed that Northern Ireland would be given a period of time to adapt. The British government asked if that could be extended because there are clearly issues at the border. There’s no doubt about it. The E.U. flatly refused. The U.K. government has now taken it upon itself to extend it unilaterally and has argued in response to severe complaints by the E.U. that this is just a temporary phenomenon. It’s not going to last forever, and it will remain in place until October.
What does it all mean? I think it’s another negotiating tactic. To be quite clear, the border is drawn in the Irish sea. Now you might think, “How the hell can you have a border in the Irish sea?” One of the biggest stumbling blocks with Brexit was how do we deal with Northern Ireland not to upset the Good Friday Accord. So they came up with this idea that any goods going from the rest of the U.K. to Northern Ireland, say from Great Britain to Northern Ireland, would then have to undergo checks within Northern Ireland, even if it’s not going beyond Northern Ireland from there because that line is in the Irish sea. What the U.K. government has now said, Westminster has said, that no, we’re extending that grace period till October. Of course, the E.U. is up in arms. The Irish also have expressed their annoyance. By Irish, I mean the Republic of Ireland. I think they’re caught slightly in the middle because they don’t quite know what to do.
It’s causing a lot of angst there. Where’s it all heading? I think we’ll come to another arrangement here. I think we’ll come to another agreement. But for me, it signifies the new tack that the U.K. government is taking. It is quite confrontational. It’s not what you’d typically associate with being British, but it’s a new style.
Matthew: It’s going to doubtlessly get some angry sprouts from Brussels.
Jabir: Without a doubt. Yes, definitely. I’ve felt for a long time that the Brexit deal was a quick fix. It was to enable companies to carry on as they are, albeit with significant paperwork. The signs are that companies are now starting to come to terms with this. The only difference between the Brexit deal and the WTO deal here is its tariffs. That’s all it is. What could happen if Brussels digs its feet into the ground? Well, they can turn around and say, “Right. We’re imposing tariffs.” In which case, we’re just back to where we started. That’s all it is.
Matthew: Another thing you’ve been keeping your eye on and perhaps a topic for next weeks’ podcast and the so-called Brexit around financial services, professionals and so on. I know you see a slight tapering off of movement in that regard, but let’s pick up on that next week. As always, great to get your views, Jabir. Don’t forget if you want to download Under the Macroscope as a podcast series; you can get it at Apple, Spotify, and the Google podcast platform for Android. If you want to catch up on some of the past podcasts, you can go to www.skyboundcapital.com. We wish you a good week and until the next time goodbye.