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England’s easing of Covid restrictions could go either way

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A Yeoman Warder at the Tower Of London leads one of the first Yeoman Warder led tours of the tower in 16 months after the final legal Coronavirus restrictions were lifted in England on Monday July 19.

Victoria Jones – PA Images | PA Images | Getty Images

Criticism is mounting on Prime Minister Boris Johnson and his government for the decision to go ahead with the lifting of Covid-19 restrictions in England this week, with the world now watching to see which direction the country’s health crisis goes next.

From Monday, there will be no more limits on indoor gathering which means that nightclubs can reopen and bars and pubs will no longer have to provide only a table-only service.

In addition, the 1-meter social distancing rule has been removed and face masks have become largely voluntary, although some airlines and transport companies have said they will retain mask-wearing requirements.

The fanfare around a day previously touted as “Freedom Day” has been muted from the government, however, as it comes amid a surge in Covid infections caused by the delta variant. The government has urged caution and for people to take a sense of personal responsibility when it comes to their newly regained freedoms.

The lifting of restrictions had already been moved from June 21 to allow for more vaccinations to take place amid the surge in infections.

Cases remain high across the U.K. with 316,691 cases reported over the last seven days, up around 43% from the previous seven-day period. Hospitalizations are low but are creeping higher, with 4,313 people admitted to hospital in the last seven days, government data shows. In the last seven days, 283 people have died.

The lifting of restrictions has drawn criticism from many medical experts and opposition politicians amid concerns that hospitalizations and deaths, while relatively low for now, could quickly rise if cases increase further.

‘Big bang’ gamble?

Ed Davey, the leader of the opposition Liberal Democrats party in the U.K., was among those criticizing the move calling it a “gamble” by the Conservative government.

“We want our freedoms back, of course we all want them back, but we have to be sensible. I’m particularly worried about clinically vulnerable people, the fact that the government isn’t making mask-wearing on public transport mandatory means that many of these clinically vulnerable people won’t be able to have any freedom at all … because they won’t feel safe on public transport,” he said.

“So this is the balance for the freedom of people to be able to go to nightclubs, as much as everybody wants some fun, you’re taking away the freedom of other people. I just fear this big bang, this gamble that Boris Johnson is taking, isn’t getting that balance right.”

David Miles, professor of financial economics at Imperial College and former member of the Monetary Policy Committee at the Bank of England, told CNBC that the situation could go either way now.

“Everything now depends on how the infection plays out across the country. You could imagine different scenarios. In an optimistic one, the infection rates, which have been running very high, level off and then begin to drop back so by the time we move into the fourth quarter the infections are coming down sharply … there’s a surge in confidence and we get [a] very strong economic bounce back.”

“That’s certainly possible and if that’s how it plays out then people will say the government was absolutely right,” he said.

But, at the other end of the spectrum, Miles noted, “the numbers infected keep rising to … 100,000 a day and hospital admissions begin to rise, they’ve already been rising, and the death rate also begins to move up, and on the back of that people remain very nervous … and we’re back, at the end of the year, in a very difficult situation and an economic recovery goes into reverse.”

Miles said he didn’t know which scenario was more likely. “I think it’s extremely difficult for the government to know what the right strategy is here,” he said.

An exciting day for others

While experts hold concerns over the lifting of restrictions, for many people the relaxation of rules is a sigh of relief after months of lockdowns, job uncertainty and, in many cases, loneliness. Those in favor of lifting restrictions note that there are many damaging consequences to remaining locked down, from the impact on the economy and livelihoods to mental health.

Lifting restrictions in the summer could also lighten the burden on the National Health Service when the winter comes too, the government hopes. Johnson has often repeated the mantra recently of “if not now, then when” in reference to lifting the restrictions, urging the public “to learn to live with” the virus.

Businesses sorely impacted by lockdowns are certain to welcome the removal of restrictions in the hope that footfall increases.

London Mayor Sadiq Khan, a member of the opposition Labour party and often a vocal critic of the government’s actions during the pandemic, said that Monday was an “exciting” day for London’s businesses.

“Today is exciting because many of the restrictions that we’ve had to deal with over the last 16 months are being relaxed and that’s really important not least because many of our businesses — particularly in hospitality, culture, retail and the night-time economy — that rely on footfall have really struggled.”

“But what we’re saying to Londoners and those coming to London is ‘please be cautious.’ If, for example, you can’t keep your social distance indoors think about wearing a facemask and follow the normal rules like good hygiene.”

Khan noted that over 9.9 million vaccine doses had been administered in London and more than three quarters of all over-40s had been double-vaccinated with younger people now the main target for immunization.

On a U.K.-wide level, 87.9% of adults have received a first dose of a vaccine and 68.3% have received both doses. Having both doses of a vaccine greatly reduces the risk of infection and hospitalization caused by the coronavirus.

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NIH Director Collins calls Israeli data ‘impressive’

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A patient receives his booster dose of the Pfizer-BioNTech coronavirus (COVID-19) vaccine during an Oakland County Health Department vaccination clinic at the Southfield Pavilion on August 24, 2021 in Southfield, Michigan.

Emily Elconin | Getty Images

National Institutes of Health Director Dr. Francis Collins called Israel’s data on Covid-19 booster shots “impressive,” noting that they provided a tenfold reduction in infection for people who received a third dose.

Israel began administering boosters in late July to individuals over 60, giving scientists more time to examine their ability to combat Covid and bolster the waning effectiveness of the initial series of doses. Collins’ comments Thursday came just a day after the Food and Drug Administration approved Pfizer and BioNTech’s Covid booster for high-risk people, including anyone 65 and older.

“Without tipping my hand too much, I will say the data looks really impressive, that the boosters do in fact provide substantial reduction in infection,” Collins said during a discussion on Covid hosted by Bloomberg Philanthropies. “Like a tenfold reduction just within 12 days after that booster, and also a reduction in severe illness, which is the thing we’re most concerned about.”

Collins added that the Israeli data indicated a roughly twelvefold reduction in severe Covid as the nation was starting to experience more breakthrough cases. Pfizer reported on Aug. 25 that recipients of its third doses experienced a threefold increase in antibodies.

The CDC’s Advisory Committee on Immunization Practices, a panel of medical authorities who offer guidance to the agency, will vote Thursday on whether to endorse the FDA’s booster decision. The panel began a two-day series of presentations on boosters on Wednesday to give experts and the public a chance to hear more data before the final vote.

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Here’s what will happen when the Fed’s ‘tapering’ starts, and why you should care

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The Marriner S. Eccles Federal Reserve building in Washington.

Stefani Reynolds/Bloomberg via Getty Images

Likely before the end of the year, the Federal Reserve will start to tiptoe into the unknown.

Central bank officials indicated Wednesday that they’re ready to begin “tapering” – the process of slowly pulling back the stimulus they’ve provided during the pandemic.

While the Fed has gone into policy retreat before, it has never had to pull back from such a dramatically accommodative position. For most of the past year and a half, it has been buying at least $120 billion of bonds each month, providing unprecedented support to financial markets and the economy that it now will start to walk back.

The bond purchases have added more than $4 trillion to the Fed’s balance sheet, which now stands at $8.5 trillion, about $7 trillion of which is the assets bought up through the Fed’s quantitative easing programs, according to the central bank’s data. The purchases have helped keep interest rates low, provided support to markets that malfunctioned badly at the start of the pandemic crisis, and coincided with a powerful run for the stock market.

In light of the role the program has played, Fed Chairman Jerome Powell assured the public Wednesday that “policy will remain accommodative until we have reached” the central bank’s goals on employment and inflation.

Markets thus far have taken the news well, but the real test is ahead. Tapering represents a teeing up of future rate hikes, though they appear to be at least a year in the distance.

“It’s certainly been communicated well, so I don’t think that should be a shock to anybody or cause a disruption to the market,” said Kathy Jones, head of fixed income at Charles Schwab. “The question really is more around asset prices than [interest] rates. We have very high valuations across the board in asset prices. What does this shift away from very easy money do to asset prices?”

The answer so far has been … nothing. The market rallied Wednesday afternoon despite what amounted to a preannouncement for Fed tapering, and roared higher again Thursday.

How things go the rest of the way likely depends on how the Fed stage manages its exit from its money-printing operations.

How it works

Here’s what tapering could look like:

Powell said the official tapering decision could happen at the November meeting and the process would commence shortly thereafter. He added that he sees tapering being finished “sometime around the middle of next year.” That timeline, then, offers a view into how the actual reductions will go down.

If the taper indeed begins in December, reducing the purchases by $15 billion a month would get the process down to zero in eight months, or July.

Jones said she would expect the Fed to cut Treasurys by $10 billion a month and mortgage-backed securities by $5 billion. There have been some calls from within the Fed to be more aggressive with mortgages considering the inflated state of housing prices, but that seems unlikely.

Federal Reserve Chair Jerome Powell testifies during a U.S. House Oversight and Reform Select Subcommittee hearing on coronavirus crisis, on Capitol Hill in Washington, June 22, 2021.

Graeme Jennings | Pool | Reuters

Powell’s general tone during this post-meeting news conference surprised Jones. The chairman repeatedly said he is satisfied with the progress made toward full employment and price stability. With inflation running well above the Fed’s comfort zone, Powell said “that part of the test is achieved, in my view, and in the view of many others.”

“The tone was perhaps a little bit more hawkish than the market expected when it comes to tapering,” Schwab’s Jones said. “That comment that the Fed will finish by the middle of next year, it was like, ‘OK, we had better get a move on here if we’re going to do that.'”

Jones said that Powell’s comments and the Fed’s tapering intentions reflected a high level of confidence that the economy continues to recover from the pandemic-induced recession, which was both the shortest and steepest in U.S. history.

“The Fed is telling us that it collectively expects growth and inflation to be pretty strong over the next year, and they’re ready to withdraw the easy policy,” she added.

A view to a rate hike

What happens after the taper is what’s really important.

The summary of individual members’ rate forecasts – the vaunted “dot plot” – indicated a slightly more aggressive posture. The 18 members of the policymaking Federal Open Market Committee are about split on whether to enact the first quarter-point hike next year.

Officials see as many as three more hikes in 2023 and in 2024, bringing the Fed’s benchmark borrowing rate to a range between 1.75% and 2%, from its current 0 to 0.25%. Powell stressed the Fed will move carefully before raising rates and likely will wait until tapering is complete, but the market will be watching for more hawkish indications.

“The next Fed meeting could be really interesting. It should give us a lot more volatility than we’re seeing now,” said John Farawell, head trader with bond underwriter Roosevelt & Cross. “They did sound more hawkish. It’s going to be data-driven and going to be about how Covid plays out.”

For investors, it will be a new world in which the Fed is still providing support but not as much as before. While the mechanics sound simple things could get complicated if inflation continues to run above the Fed’s expectations.

FOMC members upped their 2021 core inflation estimate to 3.7%, increasing it from the 3% projection in June. But there’s plenty of reason to believe that there’s considerable upside to that forecast.

For instance, in recent days economic bellwether companies including General Mills and Federal Express have indicated that prices are likely to rise. Natural gas is up more than 80% this year and will mean substantially higher energy costs heading into the winter months.

UBS forecasts that economic conditions and the tapering news will start putting upward pressure on yields, driving the benchmark 10-year Treasury to 1.8% by the end of 2021. That’s about 40 basis points from its current level but “should not have a significant adverse effect on borrowing costs for companies or individuals,” UBS said in a note for clients.

Yields move opposite prices, meaning that investors will be selling bonds in anticipation of higher rates and less Fed support.

Analysts at UBS say investors should keep in mind that the Fed is moving forward because it is getting more confident in the economy, and still will be providing support.

“While higher bond yields lower the relative attractiveness of equities, a gradual rise in bond yields should be more than offset by the positive impact from rising earnings as economies return to normal,” the firm said. “Tapering should thus be seen as the gradual withdrawal of an emergency support measure as conditions normalize.”

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Leaders must act at COP26 to prevent climate disaster

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Mayor of London Sadiq Khan pictured on September 23, 2021.

Leon Neal | Getty Images

World leaders must “walk the walk” at the COP26 summit in Glasgow this November to avert a climate catastrophe, London Mayor Sadiq Khan told CNBC Thursday.

Speaking to CNBC’s “Squawk Box Europe,” Khan warned that inaction and delay would have a disastrous impact on the environment, and called on delegates attending the summit later this year to make serious changes. 

“Unless there’s bold action nationally and internationally, I worry about the catastrophic consequences, not just in sub-Saharan Africa, not just in countries in South Asia or the Antarctic, but in cities in America like New York, in Germany and in London, where this summer we’ve faced flash flooding and the consequences of heatwaves,” he said.

During Khan’s tenure as mayor, London has seen the introduction of an Ultra Low Emission Zone, which charges vehicles that do not meet certain emissions standards for crossing its perimeters. Next month, the ULEZ is expanding to include more roads outside the city center. He has also introduced the £22 million ($30 million) Mayor’s Air Quality Fund, which aims to support projects to improve air quality in the city.

However, Khan told CNBC Thursday that regional and city leaders needed support from federal governments to take effective action on climate change.

“COP26 has got to walk the walk,” Khan said, and, referring to the signing of the landmark Paris Agreement in 2015: “In Paris, the world set out what needed to be done — now we need to set out how.”

He added that he did feel somewhat optimistic that Britain’s Prime Minister, Boris Johnson, would take ownership of the issue ahead of COP26 in November.

“The prime minister going to the United Nations and taking a leadership role in relation to the next 40 days gives me optimism,” Khan told CNBC. “I think it’s really important that we as the host of COP26 show moral leadership and real leadership. That means making sure we can together provide the $100 billion required every year [to mitigate the effects of climate change], and also showing the world how we’re going to walk the walk.”

“We’ve got a target in this country to reduce our carbon emissions by 68% by 2030,” he added. “We’ve got to show, over the course of the next few weeks, how we’re going to do that, and that will hopefully influence other countries to follow suit.”

‘Turning point for humanity’

Speaking at the U.N. General Assembly in New York on Wednesday, Johnson dubbed the impending COP26 summit “the turning point for humanity.”

“The world is not some indestructible toy, some bouncy plastic romper room against which we can hurl ourselves to our heart’s content,” he told delegates. “Daily, weekly, we are doing such irreversible damage … In just 40 days’ time we need the world to come to Glasgow to make the commitments necessary.”

He urged fellow world leaders to pledge to achieve carbon neutrality by the middle of the century.

“But if we are to stave off these hikes in temperature we must go further and faster — we need all countries to step up and commit to very substantial reductions by 2030,” Johnson said. “I passionately believe we can do it by making commitments in four areas: coal, cars, cash and trees.”

However, the prime minister faced criticism from environmental group Greenpeace after giving his address.

“The Prime Minister’s quite right to say we’re at a turning point. The truth is that as correct as those words to world leaders are, they ring hollow when set against Johnson’s failure to take decisive action to cut emissions at home,” Kate Blagojevic, head of climate at Greenpeace U.K., said in a statement.

“From ending the search for new oil to finally providing proper financial support to help the public cut carbon from their homes, there really is no end of action the government can and should be doing. The problem right now is they’re is failing miserably.”

Under Britain’s Climate Change Act, the country aims to cut emissions by 100% by 2050 relative to 1990 levels.

Part of the strategy has been the introduction of “carbon budgeting,” which sees limits set on the country’s emissions for five-year periods. In April, the government announced that its sixth Carbon Budget — covering 2033 to 2037 — would “set the world’s most ambitious climate change target into law,” aiming to reduce emissions by 78% by 2035 compared to 1990 levels.

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