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Trying to write a concise article about UK Fiscal Policy in the middle of October 2022 is a bit like reporting the final score of an aggressively close Rugby Match at halftime.

I delayed writing as long as I could, giving Chancellor (n+1) Jeremy Hunt time to lay out his “emergency statement” unravelling absolutely everything Liz Truss has put in motion since her elevation to the premiership. But, in the wake of increasing political instability, I fear how many statements might yet follow...

The question we want answered is – what does it all mean for the UK economy? How are we going to drive growth and restore financial credibility?

The current economic debacle facing the UK is much more than just a polycrises of domestic leadership misjudgements, failing services, anaemic growth, tumbling productivity, sub-optimal investment, surging mortgage rates and consumer price misery. There is also the global angle whereby high-interest rates, high debt levels, and persistent inflation may be a feature for a decade. We don’t yet know just how destructive and destabilising the consequences may yet be. (Clue – horrible!)

It’s not worth repeating the cataclysm of failure and policy mistakes since Truss was appointed Prime Minister by a small number of rich, aged, white conservative men in her party. But, give Truss and Kwasi Kwarteng some credit: their objectives were good – recognising the UK needed new, disruptive approaches and policies to drive growth and improve productivity.

Their goal was to smash the orthodoxy and transform the UK’s lethargic low-growth, low-wage and low-productivity economy into a hi-energy hi-growth economic powerhouse. (Conveniently they skipped over how Conservative Party has been in power for the last 12 years, during which time the value of the UK economy has fallen from 90% of Germany’s to 70%. Brexit? Let’s not even go there!)

Then it got messy. Recognising the UK is a lethargic stifled economy was hardly a Sherlock Holmes moment for anyone remotely familiar with economic reality. But Truss and Kwarteng thought they’d uniquely stumbled on some great economic insight – and naively decided only they were qualified to propose solutions. It was dangerously destructive arrogance. What they did next may have condemned the UK to penury for a generation.

Their strategy and policy announcements were beyond shambolic – untested, regressive, ill-advised and downright pig-ignorant of any economic or market reality. There was no strategy, no grand plan, just desperate hopes expressed as irrefutable facts. The UK’s financial reputation took millennia to establish. It took Kwasi Kwarteng less than 30 minutes to demolish it.

The really upsetting thing is – prior to 23 September 2022 (the date of Kwarteng mass-suiciding the UK economy) it would have been entirely possible to have presented a cogent, credible and workable plan to bail out the UK energy crisis and promote growth via a series of specific taxes, borrowing and policies.

The morning before Hunt presented his plan, Tesco Chairman John Allan, a highly respected British business leader, told the BBC’s Laura Kuenssberg the Conservatives have no growth plan, but: “We have seen the beginnings, I think, of a quite plausible growth plan from Labour. At the moment their ideas are on the table, and many are actionable and attractive.”  His views are generally shared across the City of London – where previously support for Labour was considered a capital offence.

We all know how it played out for Truss and Kwarteng. They have left the UK as a global financial laughing stock. By focusing the eyes of the world on our financial crisis, umpteen doors and policy options that could have offered effective ways for the UK to navigate its way through the multiple crises now upon us are now closed.  They have made finding a solution so much more difficult.

Jeremy Hunt “courageously” stepped into the breach, playing his new chancellor “can’t be sacked” card to unwind the illiteracy of Trussonomics, but he can’t wipe away the indelible stain it's left on the economic outlook for the nation. He clearly upset Truss - No 10 started actively briefing against him almost from the start. The only Truss “policy” to survive was the removal of the banker bonus cap… Why? Did his scriptwriter miss it?

Hunt, and many traditional, orthodox Tories, believe Truss and Kwarteng failed because they didn’t balance the budget, thus upsetting the markets. That’s a massive mistake. Take your pick of the many reasons markets lost confidence in them:

The new problem is Hunt has ditched Truss’s growth plans and presented a new mini-statement committing the UK to financial conservatism – effectively switching policy from Growth to Austerity. Hunt and the rest of his party have hunkered down, convinced the only way to restore the financial stability of the UK is to address the £70 bn hole in the accounts (they created) is tax hikes and spending cuts.

Austerity is never a route to growth.

One of my chums is fellow Scotsman Professor Mark Blyth, Rhodes Professor of International Economics at Brown University. His 2013 book, Austerity: The History of a Dangerous Idea, picks apart the notion of austerity will boost growth by slashing debt. “In general, the deployment of austerity as an economic policy has been as effective in bringing us peace, prosperity, and crucially, a sustained reduction of debt, as the Mongol Golden Horde was in furthering the development of Olympic dressage.”

Blyth goes on to show how Austerity doesn’t work, it increases inequality, and it can’t work in a competitive global economy where prices and currencies are volatile. He asks: “Is everybody supposed to run current account surpluses? If so, with whom—Martians? And if everybody does indeed try to run a savings surplus, what else can be the outcome but a permanent global depression?”

I spoke to Mark following Hunt’s statement and his disbelief was palatable: “The UK’s growth model, such as it was, was built around asset protection for the south and nationalism for the north. When you can’t even do the asset protection right anymore, what’s the point? And if you think further cuts to a welfare state that is already one of the worst in the OECD will bring back growth I would ask you to look at what happened the last time you tried this with Osborne for a bit of a reality check. Benefit Street and ’strivers vs skivers’ makes for good tabloid headlines but does nothing for GVA (Gross Value Added).”

Yet cutting debt and services provided by Big Government is default libertarian conservatism and will appeal to all 81326 party members who voted for Truss as Prime Minister of the UK. They may be happy.

The rest of us are not. 12 years is a long, long time in politics. Time for a change.

Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations. They tend to have robust and enforceable legal systems, solid financial infrastructure and a culture enabling transactions and risk-taking. That’s the key to understanding the fundamental strength of the City of London – centuries of stability.

All around the world, we are now seeing a rise in instabilities – triggered by supply chain breakdowns, the supply shocks in Energy and Food, and now wage demands. Nations are struggling with inflation, rising interest rates, higher debt service costs on borrowing, rising bond yields, currency weakness, and how to address multiple vectors of financial instability as they try to hold their financial sovereignty together.

It’s occurring at a time when we seem to have reached the lowest common denominator in the political cycle. That’s a critical problem – voters need leadership in crisis, and they can easily be fooled by populists.

Confidence in a nation’s political direction and leadership is one of the key components of the Virtuous Sovereign Trinity, my simple way of explaining how Confidence in a country, the value of its Currency, and the Stability of its bond market are closely linked. When they are strong – they can be very strong. Strong economies rise to the top.

But, if any one of the Trinity’s legs were to fracture, then the whole edifice could come tumbling down. Which is why we should be concerned sterling is down over 10% this year. It strongly suggests global investors have issues with the UK.

Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations.

The UK is a good example of what might go wrong. If confidence wobbles in the government’s ability to handle the multiple economic crises now upon us, particularly the rising tide of industrial unrest as workers demand higher salaries to cope with inflation or servicing the nation’s debt, then the UK’s currency and bond markets could come under massive pressure. Investors will demand a higher interest rate to account for the increasing risk inherent from investing in the UK, while the currency could tumble as investors sell gilts to buy less vulnerable more stable nations.

At least the UK is financially sovereign. We control our own currency. Sterling may weaken, but we can always print more to repay debt… Except that would probably cause a global run on sterling as confidence in the UK would further tumble. If the currency leg were to fracture, interest rates would have to rise, wobbling confidence further.

The Virtuous Sovereign Trinity sounds stable, but experience shows it can quickly turn chaotic if issues are not swiftly addressed.

Clearly, the UK has some current confidence “issues” regarding the incumbent political leadership. The growing perception that Boris is a “lame duck” magnifies internationally held concerns about how his government has failed to seize the opportunities (such as they were) from Brexit, doubts about energy and food security, and the apparent dither in policies are all perceived as reasons for sterling weakness and are another reason bond yields are rising as global investors exit.

While the UK’s debt quantum should be manageable – Italy is somewhat different. As part of the Euro, Italy is no longer financially sovereign. It has rules on Debt/GDP to observe (and ignore). But effectively Italy borrows in a collective currency it has no real control over. It has to plead with the ECB for the right to borrow money and will rely on the ECB to announce special measures to make sure its debt costs don’t turn astronomical. Without the ECB, Italy would be heading straight for a debt crisis.

That’s why ECB head Christine Lagarde is desperately trying to guide the ECB towards the establishment of anti-fragmentation policies to stop Italian debt instability leading to a renewed European sovereign debt crisis. Fragmentation means Italian bond spreads widening to Germany – the European sovereign benchmark. It’s a political issue because Lagarde is no central banker, but a politician sent in to lead the ECB to the inevitable compromise that rich German workers will pay Italians’ pensions.

In the USA there is an even larger political impasse developing. The US Supreme Court’s decision – by 4 old men and one catholic woman appointed by Trump – to deny women the right to control their bodies by undoing abortion rights highlights the increasingly polarized nature of US politics. Republicans, and their fellow travellers on the religious right, are delighted. Democrats are appalled.

US politics simply doesn’t work. All efforts by Biden to pass critical infrastructure spending have been stymied. There is zero agreement between the parties – each has destroying the other at the top of its to-do list, rather than rebuilding the economy. The result is increasing doubts on the dollar. It’s a battle the Republicans are winning by dint of managing to stuff the Supreme Court with its appointees. It’s no basis for democracy or market stability.

At the moment the dollar is the go-to currency, and treasuries are the ultimate safe haven. It could change. The world’s attitude to the US is evolving. The West may be united on Ukraine, but global support is noticeably lacking. 35 nations representing 55% of the global population abstained from voting against Russia at the UN. The Middle East and India see Ukraine as a European problem and a crisis as much of America’s making. As the West lectures the Taliban on schooling girls, the Republican party has moved the US closer to a dystopian version of The Handmaid’s Tale of gender subjugation.

As the World increasingly rejects America, then America will reject the rest of the World. Time is limited. The Republican Administration, run by Trump, or kowtowing to him, will likely pull the US from NATO and isolate itself. That’s going to become increasingly clear over the next few years. The dollar, the primacy of Treasuries… will leave a massive hole at the centre of the global trading economy.

It will be particularly tough for Europe. As we seek alternative energy sources, what happens when Trump 2.1 proves as pernicious as Putin and shuts off supplies?

The supreme court decision was clearly timed to come at the Nadir of this US political cycle – a weak president likely to lose the mid-terms in November – when the Roe vs Wade news will be off the front pages. It means the damage to the Republicans in the Mid-Term Elections could be limited – they will still make the US essentially ungovernable for the next 3 years.

If the US was a corporate, it would be a massive fail on corporate governance. But it’s not. It’s the current dominant global economy and currency. Politics and markets can’t be ignored.

The wheels of global agreement move slowly – since the first Berlin COP1 in 1995, global CO₂ levels have risen nearly 50%, temperatures are up 0.5 degrees, and the ice on the Greenland cap is melting faster than ever. Around the world, governments are increasingly alert to the reality. The amount of CO₂ in the atmosphere has risen historically faster than ever before, and rising CO₂ levels presage higher temperatures. Even the Saudis get the cause and effect and say they will redirect their economy towards carbon neutrality by 2060.

The problem is large conferences inevitably result in compromise. Compromises beget consequences. Various themes that have emerged from the conference will all impact society and markets in the coming years. These include:

First: the trajectory of carbon pledges and mitigation plans still mean global emissions will continue to rise before tailing off later this century. The experts believe this effectively means political promises to keep temperature rises to a mildly uncomfortable 1.5 degrees look increasingly impossible to keep. The scientists reckon 2.4-2.7 degrees by the end of this century is more likely, and even that depends on everyone sticking to promises.

Second: rising temperatures mean higher costs and more chaotic weather events – like the floods, fires, storms and ultra-high temperatures we’ve seen this year. Mountains are becoming less stable as the ice-binding them literally melts. Increasing climate instability will raise political protests. The consequences will fall heaviest on the poorest nations, meaning the requirement of increasing financial transfers to help them, which leads to.

Third: the problem of how to support and compensate less developed nations has become an urgent matter. Funding to ameliorate climate change and transition from fossil fuels has already fallen well short of what was promised at the Paris COP. While $100 billion is on offer, that’s the same sum India wants as a precondition to action its promised zero-carbon plan for 2070! And, sadly, there is growing suspicion many countries and corporates will try to free-ride CO₂ emission cuts by others, setting up for rising geopolitical tensions.

Fourth: is the critical issue of Energy transition. It sometimes feels like there is an assumption we can just turn every fossil energy source off, and immediately replace them with renewable power – but that’s clearly impossible, unless, of course, you want to switch off the whole global economy.

A well-considered energy transition plan is critical but it’s not simple. Thus far the approach has been to encourage renewables through subsidy and market pressure, primarily the E for Environment in ESG investing – which is becoming increasingly fundamentalist in its application – refusing to countenance any fossil fuel investments.

But market pressure to end investment in fossil fuels and transfer it into renewable is fraught with difficulties. Every investor on the planet now wants to finance and buy renewable power assets, but that means they finance the simple, easy and swiftest returns; like solar and wind power. These are proven and now produced in such numbers the costs of Wind and Solar power have tumbled.

One of the reasons gas prices across Europe have spiked is because the weather in October was calm. As energy demand rose for the autumn, the wind farms came up empty. The reality is wind and solar are easy, but hopelessly inefficient sources of energy compared to more expensive renewable power sources. Hydro and tidal power are far more reliable but currently cost more. That cost will only fall if they see wider adoption.

This leads to the fifth problem – fooling ourselves. The reality is lifetime carbon savings from wind, electric cars, and other “feel-good” solutions are discounted in the effort to be seen doing something. Ultimately, to really cut the carbon load in the economy we probably need a Manhattan Project magnitude effort to innovate new energy-dense technologies in terms of capacitance (batteries) and nuclear power – eventually leading to fusion. Unlimited fusion could solve all our issues – but that’s what we said back in the 1950s after the first hydrogen bombs!

COP26, climate emergency, climate crisis, politics, Glasgow, protests

Pragmatists understand a complete restructuring of global energy provision can’t happen overnight. It took 200 years for the world to industrialise and destabilise the climate. With the right political push and incentives, we have the wit and wisdom, and innovative capacity to make it cleaner over the next 30-50 years. We are an inventive species, and we may actually succeed in making things better. Just not overnight.

There is a sixth danger from COVID, and that’s political. Look to the increasing impact of climate protests. COP was never going to be the magic wand climate protestors demand. If the numbers continue to move against neutrality, there are the consequences of green politics to consider.

Being green is no longer eccentric – it’s mainstream. Everyone will answer yes if asked about a better environment. That has moved the goalposts. Increasingly, extreme climate protestors are supporting “De-Growth” strategies – that it’s better to somehow switch off the world to avoid a catastrophic Malthusian disaster caused by too many people consuming too many resources and polluting our closed system spaceship earth. Malthus was wrong in the 18th century and is no doubt still wrong today!

Being green is no longer eccentric – it’s mainstream.

What COP26 protests and things like Insulate UK highlight is the potential for polarised green politics to collide with the economy and growth. It’s going to take years to wean the economy off fossil fuels, but protestors will demand it happens now! The current volatility of energy pricing demonstrates a massive underlying transition problem and political naivety. We can’t fundamentally change energy provision overnight.

Climate protestors are furious this generation has “stolen” their futures will be even less happy if they succeed in reversing economic growth. The result will be to ensure billions of children as yet unborn don’t just face rising temperatures and sea levels, but also chronic poverty, unemployment, starvation, migration and rising conflict over the environment – water being the primary threat.

The real failure of governments wasn’t ignoring Greta et al and the evidence of global warming, but not anticipating the need for an energy transition plan. In coming years, the noise between climate protests and the slow pace of the transition to clean energy will get louder and become ever more likely to dislocate politics. It sets up a political crisis within the next few years as empowered green campaigners garner more airtime. This has massive market implications.

The Biden Administration has proposed sweeping tax reforms to the OECD intended to limit multinational corporations’ ability to move profits overseas, in addition to a worldwide minimum corporate tax rate.

Plans leaked to the Financial Times showed that the administration is pushing for multinational corporations to be taxed not only on the basis of where they declare their profits, but where their customers are situated.

The administration’s proposals are designed to tackle the disproportionately low tax rates paid by international firms, including major US tech giants. Apple has become a prominent example, paying an effective tax rate of under 1% due to declaring its profits in Ireland.

Paul Monaghan, CEO of Fair Tax Mark, said that the proposed changes “would have a seismic impact on the likes of Amazon, Apple, Facebook and Google ... with billions of additional taxes paid in the US and across Europe.”

The move marks a significant shift away from past US policies, which proritised the tax sovereignty of nations.

In addition to this, the Biden administration is also backing the establishment of a global minimum corporate tax rate agreed upon between some of the world’s largest economies. The agreement is intended to stop countries from luring foreign businesses by offering tax discounts.

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Corporation tax in the US currently stands at 21%, compared to 19% in the UK and 12.5% in Ireland. The Tax Foundation estimates the worldwide average for statutory corporate income tax at 23.85%, or 25.85% when weighed by GDP.

The US’s proposals to the OCD came after G20 finance ministers agreed on Wednesday to work towards an international consensus on tackling tax avoidance.

US Treasury Secretary Janet Yellen is calling a meeting of several key financial regulators this week to discuss market volatility driven by retail trading in GameStop and other equities favoured by online investors.

Yellen will convene the heads of the Securities and Exchange Commission (SEC), the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission, Reuters first reported on Tuesday.

Yellen sought a waiver from ethics lawyers prior to calling the meeting, according to a document seen by Reuters. Her decision to seek permission follows reports that she received $700,000 in speaking fees by hedge fund Citadel, a key player in the GameStop saga, potentially creating a sticking point for Yellen.

A Treasury official, who declined to be named by Reuters, said the meeting would be held this week, potentially as early as Thursday.

“Secretary Yellen believes the integrity of markets is important and has asked for a discussion of recent volatility in financial markets and whether recent activities are consistent with investor protection and fair and efficient markets,” said Treasury spokesperson Alexandra LaManna in a statement to Reuters.

The move by Yellen follows a week of unprecedented market volatility as retail investors piled into stocks that had been targeted by short-sellers. Brick-and-mortar video game retailer GameStop saw the most trading activity, with its stock price rising more than 1,600% from its state at the beginning of the year, though other struggling outlets including AMC, BlackBerry and Bed Bath & Beyond were also affected.

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The investors’ coordinated push against short-sellers cost hedge funds billions of dollars, with the resulting volatility causing Robinhood to restrict purchases of the focal stocks – a move which also caught the attention of lawmakers, who subsequently called for an investigation into the platform.

Former UK chancellor George Osborne, architect of the austerity drive following the financial crisis, is dropping his portfolio career to work full-time as a banker.

Osborne announced on Monday that he would give up almost all of his eclectic range of jobs to join M&A advisory firm Robey Warshaw as a partner. This will mean departing from the Evening Standard newspaper and his position as a senior adviser at investment firm Blackrock.

“Robey Warshaw is the best of the best, advising great businesses on how to grow, and I’m proud to be joining this first-rate team,” Osborne told the Financial Times.

Robey Warshaw is a small investment bank headquartered in Mayfair, which currently employs 13 people and made a profit of £17.9 million last year. Osborne will become the firm’s first outside partner.

It is unclear how much remuneration Osborne will receive in his new role, though filings at Companies House showed that Robey Warshaw’s highest paid partner received £10 million in 2020 and £27.8 million in 2019.

“We believe that George will significantly enhance the advice we give to clients,” a Robey Warshaw spokesperson said in a statement. “He brings differentiated experience and expertise to our team from his leading roles in global finance over the past decade.”

Robey Warshaw was founded in 2013 and quickly became a preeminent firm in the bulge-bracket deal space. It has recently advised on a range of high-profile deals including Comcast’s $39 billion acquisition of Sky, BP’s $10.5 billion purchase of shale assets from BHP Group, and the London Stock Exchange’s $27 billion takeover of Refinitiv.

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Though he is giving up most of the nine jobs he collected since departing the government in 2016, Osborne will remain chair of the advisory board of Exor, currently managing the Italian Agnelli family’s interest in Ferrari and Juventus.

Leaders of House and Senate committees responsible for financial industry oversight are planning to hold hearings regarding the conduct of trading platform Robinhood after it froze purchases of shares in GameStop and other equities that have been boosted by an unprecedented wave of online retail investment.

On Thursday morning, Robinhood blocked investors from purchasing shares in GameStop, AMC, Bed Bath & Beyond, BlackBerry and Nokia, which have become the subject of unprecedented rallies over the past few days as small retail investors flocked to companies being bet against by hedge funds.

Users were left unable to buy further stock, though they were still permitted to sell their positions. The platform also raised margin requirements for specific trades and cancelled stock orders placed the previous night.

“We continuously monitor the markets and make changes where necessary,” Robinhood said in a press release before markets opened. “In light of recent volatility, we restricted transactions for certain securities to position closing only.”

Lawmakers as far apart on the political spectrum as Representative Alexandria Ocasio-Cortez and Senator Ted Cruz condemned the decision of Robinhood to "block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit."

"We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price," said Maxine Waters, chair of the House Financial Services Committee.

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Robinhood was not the only broker to freeze purchases in the volatile stocks, with Schwab, M1, Public and Webull also temporarily curbing trades. Shares in GameStop and AMC fell 44% and 57% respectively following the platforms’ new restrictions.

Giles Coghlan, Chief Currency Analyst at HYCM, explores the developing impeachment story and what it portends for markets in the US and around the world.

Donald Trump has become the first president in US history to face congressional impeachment twice over. Following a controversial rally that resulted in his own supporters storming the Capitol building on 6 January, it seems he has now lost the support of the Republican party. This is significant, as it now means he is vulnerable to an indictment from the Senate.

You would be forgiven for expecting such unprecedented political developments to have knock-on effects throughout the world’s financial markets. To the contrary, however, the response has been muted, which came as somewhat of a shock for some.

As a matter of fact, US stocks actually saw record highs in the days following the DC rioting. The Nasdaq closed above 13,000 points for the first time in history on 7 January, a positive reaction to the Senate’s confirmation of the 2020 US presidential election results. On top of this, the S&P 500 and Dow Jones indexes also witnessed impressive gains on the same day.

Having analysed market movements over the past week, there are signs that these rallies are the result of the US finally confronting its own deep political divisions. Congressional representatives are no longer defining themselves by their support, or opposition, of the president. This means that substantial aid spending and stimulus investment can now be approved through both legislative houses. Markets have responded well to the details of President Biden’s spending plans thus far as well as the gradual roll-out of COVID-19 vaccines; signifying that the end of the pandemic now lies within sight.

As the Senate begins preparations to formally indict Trump however, potentially barring him from holding federal office in the future and depriving him of many luxuries normally afforded to former presidents, could future impeachment-related market upsets be on the horizon?

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At present, it’s almost impossible to say for certain. The S&P 500 advanced to 3,205.37 points on 19 December 2019, following Trump’s first impeachment hearing; indicating that financial markets are generally apathetic to impeachment developments on the whole.

Although the circumstances have since changed, with the Democrats' control of the Senate meaning that impeachment can now obtain bicameral support, Joe Biden’s incipient inauguration means that any outcome will have only minimal effects on the US presidency or the global economy.

Of course, these recent gains could be challenged if the first month of Biden’s presidency is beset by mass rioting from Trump’s most ardent supporters. However, even if such mass protests do take place, investors the world over fundamentally recognise the US as a country of law and order; where civil unrest never becomes widespread and is normally quickly contained.

Nonetheless, traders and investors must take note of any potential risks to their portfolio’s performance in 2021. Given how eventful 2020 was, it seems likely that there will be some unexpected political developments that could take the financial markets by surprise this year. As such, investors must be prepared for any eventuality.

In the world of investing and trading, you never know what the news each week can bring. Investors must prioritise meticulous market research and having a plan for potential market shocks in 2021, or else their portfolios could be taken for a spin when the next big political story comes along.

European and US markets saw a surge on Wednesday as Joe Biden was officially sworn in as the 46th US president.

The Dow Jones, S&P 500 and Nasdaq each hit new records as markets closed. After making gains on Tuesday as Treasury secretary nominee Janet Yellen urged Congress to “act big” on economic stimulus, the S&P 500 ended 1.4% up in a closing record.

The tech-heavy Nasdaq index was also boosted 2%, aided by a jump in Netflix stock as the company suggested share buybacks to come.

European stocks opened higher on Thursday morning, with the FTSE 100, CAC 40 and DAX respectively gaining 0.4%, 0.% and 0.6%. US markets also appeared ready to hit further peaks, with Dow Jones, S&P 500 and Nasdaq futures respectively up 0.2%, 0.3% and 0.6%.

Asian stocks also hit record highs overnight. Japan’s Nikkei rose 0.8%, while Korea’s Kospi rose 1.5% and Chinese blue-chip stocks added 1.75%.

Traders’ optimism was owed in large part to Biden’s proposed $1.9 billion stimulus package and was probably not hurt by his inauguration speech focused on “bringing the country back together”, according to CMC Markets UK’s chief market analyst, Michael Hewson.

The stimulus package would bring a raft of measures intended to support citizens and businesses impacted by the COVID-19 pandemic, with the issuing of $1,400 payments to eligible persons being its flagship feature. Also on the table are a temporary increase of tax credits, subsidies for health insurance premiums, and a new grant program for small business owners separate from the existing Paycheck Protection Program.

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The newly inaugurated president has also stated that a second spending plan will arrive “in the first few weeks” of his term, likely introducing new measures to create jobs and reform infrastructure.

President Joe Biden was officially inaugurated on 20 January, offering a dramatically changed political outlook from the outgoing Trump administration. Equally significant, Biden enters office buoyed by a “blue wave” that has seen Democrats gain majority power in the Senate while retaining a majority in the House of Representatives, granting the party effective control of both the legislative branch and the presidency for the first time since 2011.

Though the new administration will be faced with numerous economic challenges, it will have the political clout to enact drastic policies to tackle them. What does this mean for investors on the hunt for prime stocks? What are safe bets, and what bubbles may soon burst?

Green Energy

“Build Back Better” has been a common slogan ever since the 2020 campaign, broadly summarising the new administration’s aim for the US economy. The Biden-Harris campaign website specifies the creation of “an equitable, clean energy future” as a key plank in this. With the spectre of climate change becoming an ever-greater threat to the global economy, we can expect to see a good deal of renewed attention given to green business.

Naturally, this is good news for companies with a focus on renewable energy. Investors may soon see positive movement in NextEra and other utilities with wind and solar assets. Clean energy system manufacturers such as First Solar and Emphase Energy are also worth a look – as are electric vehicles companies. With Biden having voiced ambitions of creating 1 million jobs in the auto sector and incentivise EV production, the future looks bright for the likes of Tesla and Workhorse Group.

Infrastructure

Alongside Biden’s promises of greater green energy investment is a pledge to invest comprehensively in American infrastructure. Roads, bridges and energy grids are all noted as areas of concern that will soon see government investment.

With the spectre of climate change becoming an ever-greater threat to the global economy, we can expect to see a good deal of renewed attention given to green business.

A natural beneficiary of this focus on infrastructure (if Biden is serious) would be construction companies like building materials supplier Martin Marietta and equipment maker Caterpillar, both of which were heavily impacted by the onset of the COVID-19 pandemic but have since rebounded. It’s a telling portent that the Global X US Infrastructure Development ETF (PAVE), which tracks some of the largest industrial, construction and transportation companies in the US, saw a rally in the week of the election and an overall jump of 26% in the past three months.

While the optimistic rumours of a big infrastructure deal may not come to anything under the new government, telecom providers in particular can expect a boost from Biden’s promise to work towards universal broadband. AT&T, Comcast and Verizon, among other big players, can be expected to make significant gains.

Big Tech

Tech giants like Amazon, Google and Facebook occupy a strange position in the US economy. Though their market values have never been higher, and they have managed to keep up consistently high performance during the COVID-19 pandemic while other businesses have foundered, politicians from both sides of the aisle have managed to find an opponent in big tech.

Now, with majority power in Congress, Biden and his party are in a position to heavily regulate or even break up the “Big Five” of Amazon, Apple, Facebook, Microsoft and Alphabet. Notable Democrats like Elizabeth Warren have come out in support of breaking up tech giants; the Democrat-led House antitrust committee has found that the Big Five “hold monopoly power”. Biden himself has publicly criticised Facebook for providing a platform for his predecessor to “spread fear and misleading information”, though he has stopped short of recommending its breakup.

With tech companies enjoying more influence than ever before, it remains to be seen just how far the new administration will go to curb their power. The September and November tech selloffs have shown that the Big Five’s stock is not invincible; 2021 may see the end of tech giants as a sure bet for investment.

Though their market values have never been higher, and they have managed to keep up consistently high performance during the COVID-19 pandemic while other businesses have foundered, politicians from both sides of the aisle have managed to find an opponent in big tech.

Cannabis

Though not as high-profile an issue as climate change, the debate surrounding the regulation of cannabis played a role in the outcome of the presidential election and will likely have consequences for the markets. Biden’s campaign platform included the decriminalisation of cannabis at the federal level, which – while not the same as outright legalising the drug – would pave the way for long-awaited cannabis banking reform and greater acceptance of the substance’s recreational use over time.

Several other Democrat leaders, including New York governor Andrew Cuomo, have vocally supported the legalisation of cannabis, as have 66% of Americans, which bodes well for the future of the industry. Worldwide cannabis sales tripled to almost $11 billion from 2014 to 2018; Wall Street analysts predict that figure could land anywhere between $50 billion and $200 billion a year by 2030. In the shorter term, investors may want to keep a close eye on Canadian cannabis producers such as Organigram Holdings or Harvest Health & Recreation Inc – or Tilray, which managed to double its value in January alone.

More Broadly

One of the final sectors that is sure to see movement in the Biden era is healthcare. Looking past the headline-making pharmaceutical companies producing COVID-19 vaccines, and the fact that Biden has not embraced “Medicare for all” like many of his fellow Democrats, the health industry will undoubtedly be boosted in at least some areas by the new president’s policies. Biden has promised an option “like Medicare” for individual health plans, a boon for existing Medicare supplemental plan providers like UnitedHealth Group. As many as 23 million Americans could be made eligible for Medicare under Biden’s policies, which is sure to elevate healthcare fortunes.

And to move back from specific industries, there is reason for investors across the board to take note of the incoming administration’s policies. Biden has stated his intention to raise the corporate tax rate back to its pre-Trump level of 28% and to tax foreign income more aggressively, which obviously bodes poorly for the stock market. But before that can occur, a $1.9 trillion COVID-19 stimulus package is sitting on the table, sure to lift US markets broadly should it pass Congress.

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This stimulus package and the measures that may follow it, with a second spending plan slated to arrive “in the first few weeks” of Biden’s term, should give traders plenty to be optimistic about in the short term. Whether the specific industries listed above ultimately see their fortunes raised will depend on negotiations in government and the evolution of external factors like the ongoing pandemic, but prospective investors would do well to plan for the new president’s policy objectives in the years ahead.

Most major stock markets were lifted on Thursday amid reports that President-elect Joe Biden will announce a $2 trillion COVID-19 stimulus programme later in the day.

European markets saw modest gains, with the FTSE 100 opening 0.1% higher in London and the DAX gaining 0.2% in Frankfurt. Paris’s CAC 40 remained flat. The effect on Asian markets was more pronounced as Japan’s Nikkei hit a three-decade peak and Hong Kong’s Hang Seng rose 0.95%.

The bond markets also saw movement. The yield on US Treasuries, the benchmark for global borrowing costs, also rose two basis points to 1.11% on the expectation that a $2 trillion aid package will raise US debt levels to new heights. Meanwhile, European yields were held in place due to widespread COVID-19 lockdowns and heightened expectations of further bond buying by the European Central Bank.

US futures were largely subdued, with the S&P and Dow Jones respectively gaining 0.2% and 0.3% while the Nasdaq slid 0.1% down.

President-elect Biden is expected to lay out stimulus plans today in Wilmington, Delaware. According to CNN, Biden’s advisors have told allies that the total package could come to around $2 trillion.

"Essentially, the markets have been in a holding pattern for the past three days as dealers have been waiting to hear from Mr Biden,” CMC Markets’ David Madden told Business Insider. "To an extent, a large amount of positive news has been factored into stocks and commodities."

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A Deutsche Bank analysts’ note spoke optimistically on the possibility of fresh stimulus checks sent to US citizens, noting that Biden has been a vocal proponent of $2,000 checks in the past. The bank also noted the possibility of “additional immediate economic relief for families and small businesses”.

Investors have remained largely unshaken by Wednesday’s historic House vote to impeach Donald Trump, making him the only US president to be impeached twice.

Deutsche Bank AG and Signature Bank, two of President Trump’s preferred lenders, are distancing themselves from the president and his companies in the aftermath of 6 January’s deadly riot at the US Capitol building, the New York Times first reported.

Deutsche Bank had done a large amount of business with the president and is owed around $340 million in outstanding loans to the Trump Organisation. The bank has now “decided to refrain from personal business with Trump and his money” according to sources familiar with the matter, though Trump’s debt will not be wiped away.

It was reported in November that Deutsche Bank was growing weary of the “serious collateral damage” and bad press rooted in its relationship with the president, to whom it has been lending since the late 1990s. In the two years leading up to November 2020, it lent Trump more than $2 billion.

The bank’s head of US operations, Christiana Riley, condemned Trump supporters’ violent breach of the Capitol building in a LinkedIn post last week.

“We are proud of our Constitution and stand by those who seek to uphold it to ensure that the will of the people is upheld and a peaceful transition of power takes place,” she wrote.

Signature Bank, the New York-based lender that helped finance Trump’s Florida golf course, is closing two personal accounts in which the president held about $5.3 million and is calling for him to resign his position ahead of president-elect Joe Biden’s inauguration on 20 January.

“We have never before commented on any political matter and hope to never do so again,” a Signature spokesperson said. “We believe the appropriate action would be the resignation of the president of the United States, which is in the best interests of our nation and the American people.”

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The two banks come as a range of businesses cut ties with Trump and his businesses in condemnation of last week’s violence. “Let it be known to the business world: Hire any of Trump’s fellow fabulists... and Forbes will assume that everything your company or firm talks about is a lie,” Forbes editor Randall Lane wrote in an op-ed last Thursday.

The PGA of America also stripped Trump National Golf Club of the 2022 PGA Championship on Sunday, citing brand damage, and eCommerce company Shopify has shut down merchandising outlet trumpstore.com.

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