- In Europe, the UK is considering raising corporation tax to help plug the pandemic-induced deficit and promises compensation for UK exporters hit by Brexit disruption.
- Elsewhere, US president-elect Joe Biden vows to block president Donald Trump’s attempts to lift travel restrictions, while China says it will continue to support the economy as it recovers.
- In forex, cable moves back above 1.36.
- In commodities, oil and gold are both trading higher this morning.
FTSE 100 to open higher
The FTSE 100 is set to open 0.3% higher this morning at 6755.0 from 6737.3 at yesterday’s close.
European markets to follow
France’s CAC 40 is set to open 0.2% higher this morning at 5645.1 compared to 5634.3 at the close on Monday.
Germany’s DAX is set to open 0.3% higher at 13932.0 from 13894.5 at the end of play yesterday.
Biden to maintain European travel ban
President-elect Joe Biden has said his administration intends to extend a travel ban applying to much of Europe and other countries like Brazil after president Donald Trump said he would lift them.
The travel restrictions was first introduced in 2020 as a result of the pandemic and on Monday Trump signed an order that said the measures could be lifted from January 26. However, incoming president Joe Biden – who will be inaugurated on Wednesday – immediately said the restrictions will remain in place.
The restrictions have prevented most non-US citizens from entering the country if they have been in Brazil, the UK or most of Europe.
‘With the pandemic worsening, and more contagious variants emerging around the world, this is not the time to be lifting restrictions on international travel,’ said Jen Psaki, a spokesperson for Biden. ‘In fact, we plan to strengthen public health measures around international travel in order to further mitigate the spread of COVID-19.’
Will the UK hike corporation tax to plug virus deficit?
There are reports that chancellor Rishi Sunak is preparing to raise corporation tax when he delivers his next budget in March as a way of raising funds to close the huge budget deficit created during the pandemic.
With the Conservatives determined to stick to its promises not to increase income tax, VAT or national insurance, Sunak has limited ability to manoeuvre. The FT reported Sunak has told Treasury officials that the UK’s tax rate would be ‘competitive’ with other G7 countries. The UK’s corporation tax currently sits at 19%, while the average rate in the G7 is closer to 27%, according to the Tax Foundation.
The argument for raising tax for businesses is that they have received huge taxpayer-funded support during the pandemic and it is now time for them to give something back. However, many businesses are still struggling and unable to accommodate a hike in taxes right now.
Interestingly, Sunak will have to provide more support for businesses in March whilst starting to also get public finances back on track. The Confederation of Business Industry said British companies need another £7.6 billion of emergency help. ‘We just have to finish the job. Now would be a very odd time to end that support,’ said the CBI’s director general Tony Danker.
UK promises compensation for businesses suffering Brexit disruption
UK prime minister Boris Johnson has said companies struggling to export goods to the EU ‘through no fault of their own’ will receive compensation. The comments came soon after a group of seafood lorries stacked their lorries down Downing Street in protest over being tied up in paperwork and experiencing severe delays
‘Where businesses, through no fault of their own, have faced difficulties exporting where there is a genuine willing buyer, there's a £23 million fund to help out,’ he said.
China to maintain economic support through pandemic
China will continue to provide the necessary support to businesses as they recover from the pandemic and avoid any ‘policy cliff’, according to senior official Yan Pengcheng, director of General Office at the National Development and Reform Commission.
‘Considering some micro market entities will still need to undergo a period of recovery - some small firms just started to ‘get well from a serious illness’, while others have yet to regain their stamina - macro policies will continue to maintain necessary support,’ he said.
China revealed it was one of the few countries that still managed to grow in 2020 despite the pandemic derailing economies around the world, posting 2.3% GDP growth and revealing that it had accelerated in the latter end of the year.
Forex: Cable edges back above 1.36
GBP/USD traded at 1.36066 in early trade, having edged up 0.2% from 1.35862 at the close of trade on Monday.
EUR/USD was also up 0.2% at 1.20973 from 1.20776 at the end of play yesterday.
Meanwhile, EUR/GBP traded broadly flat at 0.88906 compared to 0.88893 at the last close.
Forex.com analyst Joe Perry has a look at USD/CAD as a key currency pair to watch this week considering the US will swear-in Joe Biden and the Bank of Canada’s meeting.
Commodities: Oil and gold both rise
Brent traded at $55.05 this morning from $54.70 at the end of Monday, while WTI edged up to $52.36 from $52.12.
Gold traded at $1841 an ounce in early trade, up 0.2% after ending yesterday at $1837.
Market-moving events in the economic calendar
In today’s economic calendar, the European Union’s Economic and Financial Affairs Council will be meeting today discuss how the bloc coordinates its economic response among the finance ministers of the EU’s 27 member states.
The European Central Bank’s lending survey is due out at 0900 GMT, followed by the ZEW economic sentiment survey for Germany and the EU as a whole at 1000 GMT.
The Bank of England’s chief economist Andrew Haldane will make a speech at 1800 GMT.