03 March 2021

6 min read

🔔 Emerging Market and Budget Special

OK Rishi, well done

I think he's passed the test here, by providing fiscal certainty to the market.

Here's a quick rundown of what he has laid out in the Spring budget...

Rather than reinvent the wheel, you can check out the full budget breakdown here 👇

Here are some key points from Rishi 'Diego Maradona' Sunak's speech

We will continue doing whatever it takes to support British business through this crisis.

The furlough job support scheme will continue until the end of September.

The UK government’s £20 a week increase to universal credit will continue for another six months.

Growth will be 4 per cent this year and 7.3 per cent in 2022.

£6bn tax cut for business.

VAT cut for ‘hardest hit sectors’ to stay in place until autumn.

Personal income tax threshold to be frozen at £12,500 until 2026

Rishi Sunak announced that corporation tax on profits will increase to 25 per cent from 2023, up from the current level of 19 per cent.

Government to guarantee mortgages in attempt to help first-time buyers.

Dubbing it the “super deduction,” Sunak said that for the next two years when companies invest they will be able to reduce their tax bill by 130 per cent of the cost.

The UK’s infrastructure bank will have an initial capitalisation of £12bn and be located in Leeds, chancellor Rishi Sunak said.

I'm mixed on this.

I was expecting something to be mentioned with regards to UK stock listings, but we didn't really get that.

We really need to fix that 👇

Nor were directors of limited companies mentioned (I might be biased here, but I'm doing OK, so it's not that major for me).

But OK, no immediate corporation tax rise, VAT capped for a while yet and no increases on income taxes.

Bullish-ish: the pound reacted moderately bullish, trading down to 0.8622 vs the euro.

🔥 Hot or 🚫 Not

We can cover this in one chart.

What's the story here?: Well, it's a US outperformance narrative!

We here at Macrodesiac are definitely very unsure of this old inflation story really coming to chance.

And with everything gearing how it is, we reckon that the US is going to do extremely well on a relative basis to other countries, specifically emerging markets.

Strong dollar: emerging markets' USD denominated debt topped $4trillion back in October.

A strengthening dollar is not so good for these countries, since it means that the debt burden increases on a currency cost basis.

Now, $EEM is the ETF that tracks emerging market equities.

It recently hit its 2007 high and fell off a bit.

My view has always been that the dollar will make a resurgence towards the end of this quarter, and we are starting to see that through USDJPY and USDCHF, where the yen and franc are traditionally bought when investors are fearful.

We mentioned getting long USDCHF back in November...

This was given to premium Macrodesiacs at the time...

Here's how that shout is working out that the moment...

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If the dollar does indeed continue on its upward trajectory vs other G7 (major currencies) pairs, then the inflation story should subside, but risks to the EMs will remain.

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Give the above article a read 👆

Americans are charged tax on their unemployment claims

You heard right.

This is crazy to me.

https://www.washingtonpost.com/business/2021/03/01/unemployment-benefits-are-taxed/

“The basic theory is, everyone should pay tax on it as income. Just because they are unemployed doesn’t change that,” said Pete Davis, who worked on tax reform in the 1970s and ’80s in Congress.

Apparently, many could indeed 'untax' their unemployment benefits...

But several jobless Americans told The Washington Post that they ended up with hefty tax bills even though they did check the box. Rose is one of them. When she lost her job in April at a company that processes debit and credit card transactions, she made sure to check the box to have taxes withheld. But she still ended up owing the federal government taxes.

What a ridiculous situation to be in.

You have nothing, just trying to survive, and then you're stung by the government for tax.

Mental.

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US employment stalls... but inflation!

I'm not going to keep banging on about inflation (that's a lie, I am), but seriously...

Where is this pent up demand coming from?

The ADP Research Institute released their private payrolls data for February and they found that jobs undershot the expected 168,000 increase, with an actual reading of 117,000.

So much for a quick recovery.

STOP: This ever so slightly muted the rise in the 10 year yield, which currently sits at 1.465%, but I'd expect to bounce upwards into the upper range towards 1.55/60%.