Market Watch 01.03.2021

1. Bonds on the up for EasyJet. Well-known UK airline EasyJet had investors rallying to take advantage of its new bond offering on Wednesday. The company raised €1.2 billion in the form of seven year bonds at a yield of around 1.875 per cent. This offering was indicative of increased optimism regarding the airline industry and the wider UK economy. Prime Minister Boris Johnson’s lockdown “Road Map” is an extensive plan, with the aim to have the UK relatively restriction free by the 21st June 2021. Naturally, this instilled euphoria among British investors who had already been dealing with UK equities being undervalued for the better part of the last year. The Prime Minister’s plan to ease restrictions has made British investors in particular, bullish for the future, especially within the airline and cruise line industry. By the end of Wednesday, EasyJet had accrued nearly €6 billion worth of orders. Through raising finance, EasyJet can prepare this summer for an increased glut of flights, no doubt being accrued from the previous year. This capital can be used towards maintenance costs, as well as increased marketing costs that would be needed to ensure significant demand for flights this summer, especially when competition with other airlines will be high.

2. Budgetary Blues. The Chancellor of the Exchequer, Rishi Sunak, is set to unveil the March Budget this week. Speculation abounds. Raising taxes is a policy on everyone’s mind, especially as means of paying back the nearly £400 billion of public debt. This of course has been exacerbated through the furlough scheme that covers 6.4 million workers. The raising of taxes on the public however is likely to be postponed until the autumn budget, most likely due the UK not being restriction free until the middle of June, dependent upon a Government review. It is worth noting that the Chancellor will most likely extend furlough and increase government spending on the worst hit sectors of the economy, such as hospitality and the medical sector. This is due to the fact that interest rates are extremely close to zero; meaning that the cost of debt is very low. Amendments to set-in-stone triple locked taxes like Income tax, VAT and National Insurance are likely to stay where they are in the meantime. Capital Gains Tax (CGT) and Corporation Tax are ones to watch with interest. The latter could be achieved through a means of solid, profitable entities helping those businesses that have been hampered significantly over the course of the last year. CGT would most likely be “tweaked” in the higher thresholds, but again this is a component to watch in the autumn. A budget is always a cause for concern for citizens, but the enormous amounts of debt will have to be paid somehow and at some point.

3. UK economy, a “coiled spring”?. Despite government debt having risen considerably throughout the pandemic, personal finances in the UK has come through polished and unblemished. Andy Haldane, Chief Economist for the Bank of England has stated that the UK economy is like a “coiled spring”, ready to bounce back once the economy gets reopened in its entirety in the summertime. The data from the Bank of England makes clear that bank deposits have increased by 10 per cent, along with a sharp decrease in personal debt, a marked contrast to the state itself. Everyone in the UK is reeling over the fact that pubs, restaurants and the like can open completely in the summer. What’s more is the fact that consumers have the income to spend, it having been piling up over the last few months at least. The fear of another lockdown occurring has reduced demand and spending on foreign holidays, leaving this income to perhaps a signal a mini boom in the hospitality sector this summer. There is a caveat, however. Habits are hard to break. Many families may have learned the art of entertaining at home, at the expense of eating out. Similarly, how long will the “boom” last? A pertinent question, it is certain that economic growth prior to the pandemic was mediocre, mostly due a lack of investment, thus hampering productivity. In fact, the 2019 levels of the Eurozone were lower than that of 2007, setting a depressed tone perhaps for the post-pandemic UK.

4. Mexico's Long Drug War. Mexico is well known for its largest drug cartels worldwide for many decades, however, the situation appears to have no end. During the last years, thousands of Mexicans, including politicians, students, and journalists, die in the conflict almost every year. The Mexican drug trafficking groups are responsible for the most considerable import and distribution of cocaine, fentanyl, heroin, marijuana, and methamphetamine in the United States, in the last two years, the amount of fentanyl increasing five times. The most notorious and famous drug cartel in the country is the Sinaloa Cartel, created by Joaquin "El Chapo" Guzman. Sinaloa is one of Mexico's oldest cartels, with strongholds in the northwest and Mexico's Pacific coast. The problem with the drug cartels is the lack of restrictions imposed upon the governments' leaders. Many Mexican presidents declared war on the cartels and tried to stop the distribution across the US borders by replacing the corrupt people from the leading positions or police departments. However, it is tough to detect all the corrupt personnel when the entire section might be under the control of a cartel. Another measure was to focus more on protecting civilians and businesses rather than removing the leaders of cartels. The actual president announced that his government would move away from actions to apprehend cartel leaders and instead focus on improving security and reducing homicide rates. The United States has been a close ally with Mexico in their fight against drugs, providing billions of close to modernize Mexico's security forces, reform the judicial system, and more other investments.

5. Myanmar: Hope and Fear. The situation in Myanmar continues to crumble. Although the protests continue to show their strength, with mostly peaceful demonstrations over the last week, the armed forces have begun to impose deadly force in some parts of the country, killing two protestors and injuring twenty others. In the largest city, where there are massive demonstrations, the junta is careful with confronting the largest groups because of the embassies which are located there, reporters, and other foreigners working in Myanmar. However, in the smaller places, where the media is less covered, the authorities are shooting protesters if they are too aggressive and do not obey the instructions. Last week, it was the largest demonstration since the coup against the junta's orders that the protests should deescalate. As a response to those demonstrations, the junta has commanded foreign diplomats, UN agencies, and other international organisations not to speak to "illegal entities'' representing Aung San Suu Kyi's political party, the former ruling party. Any former representation or party formed outside the new leading government is considered illegal and should have no value in front of the people or the international community. The reaction came after some Aung San Suu Kyi's party representatives tried to ask for international recognition and condemned the military regime's violent actions on anti-coup protesters. Hundreds of people have been arrested across the countries, and the police have attacked several peaceful protests with stun grenades, rubber bullets, and tear gas. Many south-east Asian governments, led by Indonesia, gathered together to find a solution for stopping the escalation of the conflict.

Thank you to James Ballentine for his collaboration and in-depth analysis!

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