Archive December 31, 2020

Central bankers to retail punters: who shaped markets in 2020

In an eventful year for global markets, some individuals (and one company) stand out. Here, the FT’s markets team picks out the notable protagonists, and the key person to watch in 2021.

Jay Powell, Federal Reserve chairman

Jay Powell earned himself the title of the “maestro” of central bankers © AP

When the financial system began to creak at the start of March, the US central bank acted quickly to stave off a much more pronounced crisis.

The Fed slashed policy rates to zero, pledged to buy an unlimited quantity of government debt and announced new lending facilities in rapid succession that forever changed its role in financial markets during periods of stress.

In moving decisively, Mr Powell earned himself the title of the “maestro” of central bankers, according to Nick Maroutsos, head of global bonds at Janus Henderson.

What comes next may prove more challenging. The Fed is facing tough questions about encouraging undue risk-taking and potentially adding fuel to risky asset bubbles. Colby Smith

Christine Lagarde, European Central Bank president

Christine Lagarde’s ill-chosen words poured fuel on a sell-off in bond markets © Thomas Lohnes/Getty

Christine Lagarde found out the hard way in 2020 how sensitive markets are to every utterance by central bankers. When the then new ECB chief said in March that she was not there to “close the spreads” — or prevent big gaps opening between the borrowing costs of the eurozone’s stronger and weaker members — her words poured fuel on a sell-off in the region’s bond markets.

Italy’s bonds dropped sharply, sending yields on their biggest ever one-day surge. Investors began to question whether the promise of Ms Lagarde’s predecessor Mario Draghi to do “whatever it takes” to keep the euro together still held. 

The ECB boss swiftly apologised and spent the rest of the year repairing the damage — with considerable success. Later in March, the central bank launched an €750bn emergency bond-buying effort, which has since been scaled up to €1.85tn. Spreads in the eurozone have collapsed. “It’s been a very steep learning curve, no question about that,” Ms Lagarde told the Financial Times in July. Tommy Stubbington

Angela Merkel, German chancellor

Angela Merkel was one of the driving forces behind the €750bn EU recovery fund © Michael Kappeler/dpa

Angela Merkel emerged in 2020 as an unlikely champion of joint borrowing by eurozone members. As one of the driving forces behind the €750bn EU recovery fund agreed in July, she was breaking with years of resistance to burden sharing between members of the currency bloc.

For investors, the establishment of the fund was a powerful statement of solidarity, which along with the ECB’s stimulus efforts bolstered a recovery in riskier assets after March’s dramatic rout. It also ushered in a remaking of Europe’s bond markets, with the EU itself for the first time set to become one of the region’s largest borrowers. 

The existence of a pan-European safe asset could help bolster the euro’s role as a reserve currency. Ms Merkel’s conversion during the Covid crisis has taken the EU one step closer to fiscal integration. Tommy Stubbington

Masayoshi Son, SoftBank founder

Masayoshi Son’s SoftBank earned itself the title of “Nasdaq whale” © Kiyoshi Ota/Bloomberg

SoftBank’s heavy-handed foray into US equity options in mid-2020 forced investors to see the conglomerate’s role in global markets in a new light.

In early September, the FT revealed that SoftBank had snapped up billions of dollars’ worth of derivatives linked to individual US tech stocks, earning it the title of “Nasdaq whale”.

Under the direction of Mr Son, the conglomerate was buying options on such a large scale that it helped to drive up the entire underlying market, as banks selling the options were forced to buy stocks to hedge themselves, in what was described as a “tail wags the dog feedback loop”. SoftBank shareholders recoiled, and the unpredictable Japanese group later abandoned its bets.

SoftBank is best known for punchy bets on privately held start-ups; investors now keep a closer eye on its activities in public markets. Katie Martin

Bill Ackman, Pershing Square manager

Bill Ackman made a quick $2.6bn in the spring with a bet on a rout in the credit markets © Christopher Goodney/Bloomberg

Hedge fund manager Bill Ackman has attracted plenty of attention in recent years, often for losing money. But in 2020 he scored one of the standout trades of the year, making a quick $2.6bn this spring with a bet on a rout in the credit markets.

Mr Ackman, who had been growing increasingly worried in February about the effects of coronavirus, spent $27m buying credit default swap insurance on tens of billions of dollars of US and European corporate bonds, the first time he had placed bets using CDS since the financial crisis.

As the pandemic began to hammer credit and equity markets, the value of these contracts soared. By the time Mr Ackman made an emotional appearance on CNBC on March 18, around the nadir of the market slump, he had already sold half his position.

In the now-famous interview, Mr Ackman warned that “hell is coming” and that as many as 1m Americans could die if the government did not act, explaining that he had grown super-bearish after waking from a nightmare about the virus’s rapid spread. But in the same interview he also said he was aggressively buying stocks — another bet that was later vindicated — because he expected the Trump administration to tackle the economic fallout from the virus.

Mr Ackman is enjoying a big turnround in his fortunes after four consecutive years of losses that included bad bets on pharmaceuticals group Valeant and a bet against nutritional supplement seller Herbalife. His gain of around 65 per cent this year makes his Pershing Square fund one of the world’s top-performing hedge funds. Laurence Fletcher

Carnival Corporation, cruise operator

Carnival was one of the earliest corporate casualties of the coronavirus crisis. © Kazuhiro Nogi/AFP/Getty

When surging coronavirus cases forced the Diamond Princess cruise ship into quarantine in February, it provided one of the first clear signs that Covid-19 was a problem beyond China’s borders. Carnival Corporation, the vessel’s owner, soon became one of the earliest corporate casualties of the coronavirus crisis.

And yet just two months later, Carnival raised more than $6.5bn in debt and equity, demonstrating just how much the Federal Reserve had underpinned capital markets. A $4bn bond backed by the company’s cruise ships set a template that corporate America soon followed: pledging prized assets to unlock funding.

Carnival encapsulated a year in which companies facing near-complete collapses in revenue could still raise billions of dollars in financing. It was at the forefront of many capital markets trends, from convertible bonds to post-vaccine announcement equity raises. And by November Carnival could once again borrow without pledging its assets, capping off a year in which it raised more than $16bn from debt and equity markets. Robert Smith

Prince Abdulaziz bin Salman, Saudi Arabia energy minister

Prince Abdulaziz bin Salman led Saudi Arabia in launching an all-out price war that hammered the oil market © REUTERS

The role of the Saudi Arabian energy minister is generally pretty straightforward: corral Opec and allies like Russia to assist you in managing oil supplies, keeping prices just high enough without overheating.

But when diplomacy fails, what option do you have to respond?

In March Prince Abdulaziz bin Salman, the half-brother of Crown Prince Mohammed bin Salman, decided to show allies and rivals alike. When Russia baulked at further production cuts in the early stages of the pandemic, Prince Abdulaziz led Saudi Arabia in launching an all-out price war that hammered the oil market even before lockdowns really started to slash oil demand.

Brent crude did not so much fall as implode, losing 24 per cent in just one session and continuing to slide for the next six weeks.

It ultimately took an intervention from US president Donald Trump, fearing for the future of the US oil industry, to get Prince Abdulaziz to change course. In April a deal was agreed for the largest ever production cut. But was Prince Abdulaziz’s price war a sign of things to come? David Sheppard

Berat Albayrak, former Turkey finance minister

Berat Albayrak’s two-year tenure saw Turkey’s lira lose 46 per cent of its value © Mucahid Yapici/AP

Turkey’s lira lost 46 per cent of its value during the two-year watch of Berat Albayrak, who quit as finance minister in November. Much of the blame belongs to his father-in-law, president Recep Tayyip Erdogan, whose obsession with credit-fuelled growth and deep aversion to higher interest rates has for years put strain on the currency. 

But Mr Albayrak, 42, was the driving force behind a disastrous attempt to hold the lira steady. Turkey’s central bank spent tens of billions of dollars on a failed intervention that left a deep hole in the country’s foreign-currency reserves. After Mr Albayrak’s resignation in November, the lira enjoyed its biggest one-day rise in two years. Laura Pitel 

Dave Portnoy, stock market trader

Dave Portnoy embodied a new generation of have-a-go traders © Dave Portnoy/Twitter

Amateur stock traders had a blowout year in 2020, particularly in the US, where bored sports betters branched out into markets in droves. Leading the pack was Dave Portnoy.

With bravado, boisterous humour, a foul mouth and millions of social media followers, Mr Portnoy embodied a new generation of have-a-go traders, noisily and frequently reminding his fans that “stocks only go up”. From the end of March 2020, to the intense frustration of more cautious institutional fund managers, he was right.

Aside from a few niche bets, Mr Portnoy and his acolytes are simply too small a force to move global markets. But this vibrant community has ridden the wave in stocks up to new record highs, and shows no sign of backing down. Katie Martin

Key figure of 2021: Janet Yellen

Janet Yellen will assume the Treasury secretary role at a pivotal moment for the US economy © Andrew Harnik/AP

If confirmed by the Senate as the next Treasury secretary early in 2021, Janet Yellen will become not only the first woman to hold the country’s top economic job but also the first person to have served at the helm of the Treasury, Federal Reserve and the Council of Economic Advisors. 

She will assume the role at a pivotal moment for the US economy. The recovery has begun to stall, the Fed has stretched monetary policy close to its limit and the coronavirus crisis continues to rage on.

One focal point will be the fate of several lending facilities deployed jointly by the Treasury and Fed earlier this year. Outgoing Treasury secretary Steven Mnuchin refused to extend five programmes beyond their December 31 expiration date, despite pleas from investors. Mr Powell has also indicated his support to keep these facilities operational in case the volatility that roiled markets earlier this year returns. 

Investors expect Ms Yellen to work closely with Mr Powell to try to overcome resistance and get these back online in short order. Colby Smith

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Climate efforts have entered a tricky new phase

Never has so much been promised by so many governments, businesses and financial institutions. China says it will cut its carbon emissions to virtually zero by 2060. BP is aiming for net zero emissions by 2050, as is HSBC, the EU, US president-elect Joe Biden and investors managing assets worth $9tn. This splurge of commitments to tackle climate change is welcome, but it risks being confused with something it is not: action to cut emissions at the scale and pace needed to meet the goals of the 2015 Paris climate accord.

The 189 countries in that pact are supposed to cut their emissions to keep global warming well below 2C, and ideally 1.5C, on a planet that has already warmed by about 1C since the 1850s. The pandemic has inadvertently shown what is needed. Scientists estimate Covid-battered economies produced 34bn tonnes of CO2 from fossil fuels in 2020, an epic plunge of 2.4bn tonnes from 2019.

However, the same scientists say a decline of around this magnitude is needed every year until 2030 to have a reasonable chance of meeting the 1.5C goal — and daily emissions are already edging back to what they were in late 2019. There is a vast gap between the safer climate being promised and the policies in place to achieve it.

This does not mean the world needs to go into permanent lockdown. But it must be borne in mind when China says it will reach carbon neutrality by 2060 but continues to build power plants that burn coal, the dirtiest fossil fuel. Or when an oil company says it will cut its emissions per barrel of crude produced, but not its absolute amount of carbon pollution. Or when an asset manager backs green accounting rules but votes against shareholder resolutions to drive faster emissions cuts.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 

It is vital context for G20 countries, which account for 78 per cent of greenhouse gases. Their Covid recovery and rescue plans could shift their economies to a greener footing faster but the UN reckons that so far, they are spending 50 per cent more on sectors linked to fossil fuels than on low-carbon energy. Unfortunately for the British hosts of the COP26 UN climate talks in Glasgow in November, the international system of negotiating climate action has itself become part of the problem.

When these negotiations were launched almost exactly 30 years ago on December 21, 1990, they were ahead of public opinion. Today the talks lag behind a public rightly demanding faster, deeper action. As four former senior UN climate officials write in a new analysis of the negotiations, “continuing at the pace of the last 30 years is unthinkable”.

The UK must deploy all its diplomatic might to make COP26 a turning point. Instead of another unwieldy gathering marked by lofty speeches and distant targets, the meeting should be used to drive co-ordination of policies such as meaningful pricing and regulation of carbon; phasing out coal and ending the fossil fuel subsidies that G20 nations vowed to start eliminating back in 2009.

Governments of all sizes must follow the lead of Mr Biden, who is preparing to make climate change a priority across his incoming US administration, rather than consigning it to specialist agencies. The good news is that global cost estimates for shifting to a zero carbon economy have collapsed, though fierce headwinds remain.

The pandemic is far from over, not least in the UK. Yet if the nation that was the birthplace of the industrial revolution can seriously advance a zero carbon revolution, it will provide a legacy lasting decades or even centuries to come.

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Exit from single market closes a chapter UK did so much to write

When Big Ben strikes 11pm on New Year’s Eve, the UK will leave Europe’s single market. It will be a moment of national catharsis — and like in Greek tragedies — a moment when the protagonist’s own triumphs of the past catch up with him.

For the roots of Britain’s rupture with Europe grow from its greatest European victory: the success in imparting to Europe a British and especially Tory economic ideology of eliminating bureaucratic barriers to trade. The single market was to a large extent created by British Conservatives.

“Just think for a moment what a prospect that is,” Margaret Thatcher told an audience of British business leaders at Lancaster House in 1988 when she was prime minister. “A single market without barriers — visible or invisible — giving you direct and unhindered access to the purchasing power of over 300 million of the world’s wealthiest and most prosperous people. Bigger than Japan. Bigger than the United States. On your doorstep. And with the Channel Tunnel to give you direct access to it.”

Thatcher was the political force behind a genuinely unified European market for goods, services, labour and capital; Arthur Cockfield, the Brussels commissioner she appointed in 1985, was its intellectual architect and bureaucratic engineer.

How UK newspapers reported Britain’s entry into the common market in 1973 © Frank Barratt/Hulton/Getty Images

The motivation was plain enough. When Britain belatedly joined what was then known as the European Economic Community in 1973, economic integration mainly took the form of a customs union, known as the bloc’s “common market” in which tariffs between members were eliminated. Those who saw economic benefits for Britain were vindicated, with membership quickly bringing to an end Britain’s long underperformance as economic growth caught up with European peers.

The common market remained, however, riddled with barriers as differing national regulations made cross-border trade costly.

And as soon as he arrived in Brussels in 1985, Cockfield set out to remove them. His white paper on “Completing the internal market”, one of the most consequential documents in EU history, set out a compromise between “harmonised” pan-European rules and “mutual recognition” of national ones. Much as the British might once have wanted a simple system of mutual recognition, Cockfield realised that politically, this would never fly without a foundation of minimum common standards. Where necessary, therefore, common rules relating to the single market would be adopted — by qualified majority of member states rather than unanimous consent, to avoid political deadlock — with national leeway to shape the detailed implementation where possible.

Cockfield was remarkably successful. The 1986 Single European Act allowed single market legislation by qualified majority. Hundreds of legislative measures were then passed at speed, and by the start of 1993 the single market was a reality, and most border controls disappeared. 

The UK began to sour on its own creation, however, even before it came into being.

An anti-euro protester campaigns against the UK adopting the currency in 2003 © Scott Barbour/Getty Images

One irritant was present from the start. For continental leaders, the elimination of capital controls meant only monetary unification could prevent currency instability that would distort trade or jeopardise cross-border investments. As the slogan had it: “One market, one money”. This link was never accepted in Britain. In the long-term this deepened a divergence of interests between the UK and the euro members, which would show up starkly after the global financial crisis and David Cameron’s ill-fated attempt to negotiate new terms for Britain’s EU membership.

But other consequences of the single market were ones the UK had not just accepted, but desired. Yet it soon had second thoughts about them.

Shortly after Lancaster House, Thatcher gave what would become known as the Bruges speech, a foundational text for British Eurosceptics. The European Commission’s ambition for a “social Europe” had woken her up to the danger, as she saw it, that she had “successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels”.

If that had come to pass it would have been an effect of the very method Thatcher and Cockfield had championed: common rulemaking by (qualified) majority decision. The prime minister who pushed for common rules to remove trade barriers struggled to accept that a majority of others may have different ideas about what the best common rules for free trade ought to be. In parallel, the Labour party warmed to a European integration it had previously spurned. 

Boris Johnson had long supported the single market but was concerned about the role of the European Court of Justice © Carl Court/Getty Images

A further implication of the single market project was the growing role of the European Court of Justice. Where there are common rules, there must logically be a common arbiter of whether the rules have been obeyed. But this increasingly rankled the most vocal British Eurosceptics as offensive to sovereignty. Even for prime minister Boris Johnson, long a supporter of the single market, the ECJ’s final word in interpreting much of the law that regulated the UK economy seems to have been genuinely intolerable.

Then there is the most toxic part of the 2016 referendum campaign. Part of a betrayal myth about the UK’s 1973 accession is that people signed up only to free trade, not to a freedom of movement later imposed by stealth. But the ability to work anywhere in the bloc was part of the EU’s founding credo, as was well understood in the original UK membership debates.

The single market nevertheless made the aspiration of free movement for workers a reality by sweeping away bureaucratic and legal barriers to moving. Then in 2004 countries from eastern Europe joined the EU, championed by the UK, which was also one of few countries to waive a transition period before east Europeans gained full free movement rights. Millions of workers took the opportunity to come. The transformation of Britain’s labour market and demography gave Eurosceptics their most potent issue to campaign on.

It was, in all these ways, a case of willing the end but not the means. British Conservatives managed to liberalise trade across Europe, then discovered what they really wanted was a strict conception of sovereignty. Mr Johnson’s Christmas Eve trade deal gives them that — but at the price of restoring all the trade frictions Thatcher and Cockfield had managed to remove. This might settle the issue if Britain’s self-appointed “natural party of government” has now made up its mind. But with Brexit associated as much with a free-trading global Britain as with a sovereign one, no one can know whether the deal will resolve these tensions permanently.

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What did Silicon Valley’s ICO bubble create?

Three years ago, when the blockchain start-up Filecoin raised $257m with nothing more than a promise to build a decentralised marketplace for data storage, it looked like another example of the mania that was sweeping through the cryptocurrency world.

At the time, investors were pouring an estimated $20bn into so-called Initial Coin Offerings — sales of new digital tokens by projects which, like Filecoin, claimed to be building important new digital infrastructure. Many have since sunk without a trace, and ICOs quickly went out of fashion.

But in recent weeks, the Filecoin marketplace has finally seen the light of day. People vying to earn its tokens have already committed a combined 1.3 exabytes of storage capacity, according to Juan Benet, the project’s founder. An exabyte is equivalent to 500 times the data stored in all US research libraries.

Demand from customers looking to buy storage is still only a small fraction of this, but Filecoin’s first goal was to attract capacity, and progress has been ten times ahead of expectations, claimed Mr Benet.

The activation of Filecoin’s network is part of the belated emergence of a handful of blockchain projects, financed by the ICO bubble, that set out with big ambitions to change online activity.

Polkadot, a platform others can use to create their own blockchains, is close to completing the phased launch of its network. Others, like Cosmos, which provides a way to connect different blockchains, and Tezos, a “smart contract” competitor to Ethereum, have also gone live.

The founders of some of these projects admit that their ideas benefited from the wave of financial speculation. Gavin Wood, a founder of Polkadot, said that much of the money pouring into ICOs in 2017 represented the recycled profits from investments in Ethereum (which he also co-founded) and Bitcoin.

“Ultimately I think a lot of people viewed this as a sort of accumulator bet,” Mr Wood said. “They won a lot of money on Ethereum and they wanted to see if they could carry on rolling.”

Yet he and other crypto entrepreneurs claim that the technical innovations from a handful of survivors will prove more lasting than the financial mania surrounding the ICOs.

“These projects have built pretty significant things,” said Mr Benet. “I think the total capital organised [by ICOs] in the last three years is not — if you look at the rest of technology — out of the ordinary.”

Though some of the blockchain networks have gone live, the applications they were built to support have yet to be developed, making it hard to judge their ultimate impact.

The Tezos blockchain, for instance, was designed for “any place where you’re trying to create a digital economy”, like purchases made inside a video game, said Kathleen Breitman, one of its founders.

Other potential uses are in online “creator economies”, said Alison Mangiero, president of TQ Tezos — places where individual artists, entertainers and influences might see a benefit in “cutting out the middleman and working out ways to monetise their fan bases.” They promise applications like this will start to appear in 2021.

Meanwhile, a recent surge in interest in DeFi — decentralised finance applications that cut out traditional intermediaries — has also drawn attention to the blockchain platforms that could support it.

Polkadot has been one of the main beneficiaries of developer attention: its platform for interlinked blockchains could be well suited to DeFi, supporting a large number of simple applications that could be combined to create new and more complex financial products.

Platforms like this are not designed to simply deliver an existing set of services at marginally lower cost, said Mr Wood. Rather, they could support entirely new services, or ones that could only be provided with “orders of magnitude more overhead” using older methods, he said.

The same is true of data storage delivered over a blockchain, according to Mr Benet. Though it might sound like the ultimate undifferentiated service, the storage services sold by a handful of giant cloud companies like Amazon Web Services are highly complex and “anything but a commodity”, he added.

Opening up Filecoin’s network to smaller players, as well as developers who can build specialist services to make use of the raw capacity, will be as disruptive to the cloud companies as Airbnb has been in the hotel world, he said.

If new applications are still largely theoretical, the financial gains are all too real. The price of Filecoin’s tokens have risen 14-fold from the average price paid during its ICO, while Dots — the tokens used on the Polkadot network — are up nearly 20-fold.

Line chart of Price ($) showing Filecoin

The promoters of some of these projects also stand to be big winners. Filecoin, for instance, reserved 300m tokens for itself at its inception. That haul is currently worth around $7bn, though Mr Benet said the tokens will not fully vest for six years.

The recent Bitcoin boom has also cast some of the less successful veterans of the ICO bubble in a new light. Most accepted payment in Bitcoin and Ether in exchange for their own tokens, leaving them with a potential windfall. The Tezos Foundation took in $232m through its 2017 ICO — an amount that had risen to $652m by July this year. With more than 60 per cent of its reserves held in Bitcoin, it is now likely to be worth well over $1bn.

The value of their crypto holdings means that many of the less successful blockchain projects are now sitting on reserves worth more than their “market caps” — or the total value of their outstanding coins. That is likely to bring intervention from activist investors “holding projects’ feet to the fire” and forcing them to pay out some of their surplus cash, said Ryan Zurrer, a crypto investor and entrepreneur.

Tech history has seen this before. In the aftermath of the dotcom bubble, cash rich companies without viable business models sometimes lingered for years while investors agitated to get their cash back.

The dotcom period also produced a small number of big winners, including Amazon and Yahoo. The survivors from the ICO bubble still have a long way to go to prove they have anything like the staying power.

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Vienna Philharmonic plays on despite pandemic restrictions

When the Vienna Philharmonic finishes its New Year’s concert on the first day of 2021, no one will be in the audience to clap.

Normally, some 50,000 people apply for tickets to the annual tradition. But this year the seats in the frescoed great hall of the Musikverein will be empty for the first time since the event started in 1939, owing to the pandemic.

The orchestra is finding a supportive audience remotely, however. Seven thousand people from up to 90 countries have registered to send audio broadcasts of themselves applauding from their homes.

“We need to have hope,” said Italian conductor Riccardo Muti, who will lead the concert for the sixth time. “The Musikverein for the first time without music on the first of January would be like a grave, it would be the worst sign, a negative sign for the entire world.”

This concert, which includes a line-up of Viennese composer Johann Strauss Jr’s waltzes and polkas, usually draws an audience of some 50m people and has become a symbol of Austria and the cultural importance of its capital.

The Vienna Philharmonic under the baton of Riccardo Muti rehearse for the 2021 New Year’s concert © Dieter Nagl/Wiener Philharmoniker

“The music we are playing has lifted us through so many crises,” said Daniel Froschauer, the philharmonic’s first violinist. 

Performances such as the New Year’s concert have been able to continue in part owing to generous emergency support for the arts. Austria’s federal government provided €220m in addition to its regular cultural budget of €466m to support artists and cultural organisations. The government also reduced value added taxes for the cultural sector and offered access to the Kurzarbeit furlough support scheme, film-making subsidies, vouchers for cancelled events and replacement for sales lost during lockdown.

Many of the greatest classical musicians, from Wolfgang Amadeus Mozart to Gustav Mahler, lived and worked in Vienna, so the genre is important to Austria. In the early months of the pandemic, Chancellor Sebastian Kurz personally pledged to support the necessary conditions for performances, said Mr Froschauer, who is also the chairman of the Vienna Philharmonic’s board. Classical music is a big draw for tourism, a sector that accounts for 6.5 per cent of gross domestic product. The creative sector employs about 5 per cent of the workforce.

Ahead of the New Year’s day concert, musicians and staff are being subjected to a regime of daily Covid-19 testing before entering the Musikverein’s gilded halls. Although live audiences are banned until at least January 6, Mr Froschauer said: “We feel privileged we are able to play, and we do so with the mindset that we know so many people cannot.”

Guests wear face masks before the Summer Night Concert at Vienna’s Schönbrunn Palace in September © Christian Bruna/EPA-EFE

Austria has successfully held several large cultural events in 2020, including the 100th Salzburger Festspiele, a month-long annual theatre, music and opera festival which took place with socially distanced seating and regular Covid testing for performers. It sold 76,000 tickets and organisers said no Covid-19 infections could be traced to it.

Other Austrian venues have also tried to keep doors open, at least to performers. Jazz club Porgy and Bess, in central Vienna’s first district, converted most of its winter programme into online concerts streamed in real time where viewers could pay what they liked. Often the shows drew a much larger audience than the club’s seating capacity.

“We want to send a signal that we don’t give up because of the virus,” said artistic director Christoph Huber, noting that his club’s ability to host concerts and continue paying musicians — through a combination of state and audience support — was rare. 

Mr Froschauer, who studied music at the Juilliard School in New York, said Europe’s cultural workers were lucky in comparison to the “horror scenario” in America.

The US had record deaths owing to Covid-19 in December and does not have a robust social safety net for artists. More than half of actors and dancers, and almost one-third of musicians, are unemployed, according to the US National Endowment for the Arts.

The Vienna Philharmonic performs at the Schönbrunn Palace in September © Georg Hochmuth/APA/AFP

But while Austria’s orchestras and other high-profile arts organisations have received substantial state support, many cultural workers, especially young freelancers, struggle.

In May, culture minister Ulrike Lunacek resigned saying she had not been given enough resources to assist culture workers. “This is not worthy of one of the richest countries in the world,” she said.

Baritone singer Marko Trojanovski, 26, who has lived in Vienna for eight years, had so many performances cancelled in 2020 that he had to take a job selling jeans at a new clothing store.

His partner, composer Oskar Gigele, also 26, worried about the long-term effects the pandemic will have on opportunities in the performing arts for young people. 

“This crisis is thinning out this generation — people are giving up . . . If you’re not employed already, you don’t have a chance to get in somewhere, or to get any funding,” he said. “There is no money left right now.”

Even for storied institutions such as the Vienna Philharmonic — which has survived the collapse of the Austro-Hungarian empire, annexation by Nazi Germany and the devastation of the second world war — the future is uncertain.

The Philharmonic made it to Japan in November for a 10-day tour, but plans for a large US tour in 2021 have been postponed indefinitely. Tours are important for revenue, and Mr Froschauer said the group was considering going instead to China and elsewhere in Asia, where Covid-19 cases are far lower.

“We usually plan three years in advance, but now it is about two weeks,” he said.

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Food price rally sparks warnings of pressure on developing countries

A sharp rebound in food prices is stirring concerns over inflation and potential unrest in some developing countries.

Stockpiling, logistical bottlenecks and dry weather have pushed wheat, soyabeans, rice, and corn markets higher. The Bloomberg Agricultural sub-index has jumped more than a third since its low point in June to a two-and-a-half-year high, while the UN Food and Agriculture Organization’s food price index hit a six-year high in November. Soyabeans, a key ingredient for livestock feed and an important source of vegetable oil, are trading at just under $13 a bushel, with traders anticipating “beans in the teens” for the first time in six years.

In 2007-08, severe droughts drove up prices, triggering food riots in some African countries. A wheat export ban by Russia in 2010 also led to a surge in food prices in the Middle East, contributing to the Arab uprising. Some are now concerned about a “Covid shock” hitting some of the more vulnerable countries.

“The real impact is the access to food. People have lost their income. There are a lot of unhappy people and this is a recipe for social unrest,” said Abdolreza Abbassian, senior economist at the FAO.

The issue is not a food shortage at this point — grains and oilseeds have had bumper crops over the past few years, leading to higher inventories. But analysts worry that higher prices at a time of economic stress bodes badly, especially for poorer countries, particularly while an economic rebound in Asia is bumping up demand for grains and soyabeans. “Food inflation is the last thing governments need right now,” said Carlos Mera, analyst at Rabobank.

Line chart of Bloomberg agricultural index showing that agricultural commodities have staged a sharp rebound

Fitch Solutions expects higher agricultural commodities as travel and spending “edge closer to normal, as the hospitality and restaurant sector reopens and consumer confidence rises”. 

Various governments shoring up their food reserves have also pushed markets higher.

China has been a particularly big buyer of everything from corn to rice. The country’s authorities used their reserves to damp down price increases during the pandemic and are replenishing their strategic stockpiles. A recovery in the hog herd after the devastation caused by African swine fever has also meant a rebound in grains used for livestock feed.

In the corn market, for example, the US Department of Agriculture’s Beijing bureau recently more than tripled estimates for China’s imports in the 2020-21 crop year from 7m tonnes to 22m. Due to the low level of state reserves, “substantial corn imports will be necessary to meet demand while also controlling further price increases and maintain stocks throughout 2021”, it said.

Line chart of CBOT soyabeans ($ per bushel)

Wheat purchases by North African countries have kept pace, and food companies are also making sure they do not end up with shortages. Wheat itself was plentiful, but inventories were piling up in importing countries, said Mr Mera. “It’s a transition from ‘just in time’ to ‘just in case’,” he added.

Supply worries are also fuelling the grain bulls. Dry weather has affected crops around the world, especially in South America, where the La Niña weather pattern is causing hot and dry conditions in southern Brazil and Argentina. Farmers there are struggling with the lack of rain, with many having to dig up fields of shrivelled-up crops. 

Corn has rushed to a six-year high, and although wheat is off this year’s peak, it is still trading at more than $6 a bushel, levels last seen in 2014, due to dryness in Russia, the world’s leading exporter of wheat, and worries about grains export restrictions by Moscow. 

Rice prices, which jumped after south-east Asian producers threatened to limit overseas sales at the start of the pandemic, have remained elevated over logistics bottlenecks and buying by China. Port congestion and a lack of containers had caused shipping durations to double in some cases, leading to jitters in the market, said Frank Gouverne, chief operating officer at Rice Exchange, a digital platform for rice trading. 

“Freight prices have doubled. People are also waiting three to four months for their orders, adding further pressure on the market,” he said.

Hedge funds and other speculators have also bought food commodities in the second half of 2020, further adding to the rally. At the end of October, speculators held record net “long” positions in agricultural commodity futures and options after an unprecedented 22 consecutive weeks. While some have taken profits, bullish positions remain at multiyear highs.

Although prices on the international markets are lower than levels seen in 2009 and 2010-12, food is expected to remain a pressure point, especially for less developed countries.

“If [people] will realise the vaccine won’t solve the problems in the near term and they don’t have food, then things could get out of control,” warned the FAO’s Mr Abbassian, adding: “Although I still doubt we will hit those [previous] peaks, we will see volatility in the coming year.”

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M&A rebounds sharply to hit $3.6tn in 2020

A flurry of big deals in the last few weeks drove global mergers and acquisitions to $3.6tn in 2020, representing an extraordinary rebound of takeover activity in the second half of the year.

The 2020 total value of deals is down 5 per cent from 2019, according to data from Refinitiv, but constitutes a dramatic recovery from the first half when the spread of Covid-19 brought dealmaking to a halt.

Companies struck more than $2.3tn worth of deals since the start of July, an increase of 88 per cent from the first half, according to Refinitiv. Activity in each of the third and fourth quarters of this year surpassed $1tn, marking only the second time since 2008 where dealmaking exceeded that level in consecutive quarters.

“It’s been a year of two halves,” said Piers Prichard Jones, a partner at corporate law firm Freshfields. “We, like everyone else, saw the first half being very impacted by initially the threats of the virus and then the arrival of the virus and then uncertainty that brought. From the start of the third quarter, you saw a level of confidence that meant that people became more pragmatic about doing deals.” 

Having earlier said he did not “really see an M&A environment”, Salesforce chief executive Marc Benioff this month agreed to buy workplace chat app Slack in a $27.7bn takeover.

M&A activity recovers in the second half of 2020

“I think that when I look back, I don’t think I could have ever imagined any acquisitions happening this year. We’re in this pandemic . . . And all of a sudden, Bret and Stewart come together and say, yes, we can do this,” Mr Benioff said, referring to Salesforce president Bret Taylor and Slack chief executive Stewart Butterfield. 

Dealmakers said activity improved in the second half of the year thanks to the promise of vaccines to treat the coronavirus and political certainty following the US election of Joe Biden. 

Anu Aiyengar, co-head of global M&A at JPMorgan Chase, said: “Outside Covid, this is a good environment for dealmaking. The equity markets are high, interest rates are low and equity investors are happy to pay for growth.”

European deals boom makes up for US M&A slowdown

Peter Orszag, chief executive of Lazard’s financial advisory business, said: “If you told me we would have a pandemic and that global M&A would still be flattish compared to last year, I would have been astonished.” Fees earned from global dealmaking fell 5 per cent to $30.4bn, according to estimates from Refinitiv. 

Some of the biggest deals in the final three months of the year included S&P Global’s $44bn deal to buy analytics group IHS Markit, AMD’s $35bn acquisition of rival US chipmaker Xilinx and UK pharmaceutical group AstraZeneca’s $39bn takeover of US biotech group Alexion.

In each of these deals, the acquirer used its own stock as the main currency, taking advantage of soaring stock markets. S&P Global and AMD, led by chief executive Lisa Su (pictured above), are paying for their deals fully with their own shares, while AstraZeneca is paying for roughly two-thirds of its deal with its shares and Salesforce is paying for just over half of its Slack deal in its own shares. 

Goldman Sachs retains top dealmakerstatus

Stephan Feldgoise, co-head of global M&A at Goldman Sachs, said several deals were also spurred by companies’ desire to diversify their portfolios. “The balance has shifted where companies now view having increased and diversified scale and a larger balance sheet being as important as focusing on growth opportunities,” he said. 

Despite an increase in the overall number of US transactions, the total value of dealmaking in the region fell 21 per cent to $1.4tn for the full year. In contrast, activity climbed 34 per cent to $989bn in Europe and 15 per cent to $872bn in Asia. 

“There was a reason we saw so many deals this year,” said Matthieu Pigasse, a Paris-based partner at Centerview Partners. “There are very big, cash-rich companies . . . that are either looking for bolt-ons or for target companies that have been damaged by the crisis.”

Advisers said they expected dealmaking in Europe to remain at elevated levels during the first few months of next year, partly because of a weaker rebound in stocks in the region.

Tech and finance dominate dealmaking

“We’re seeing some buyers using their stock in cross-border deals and taking advantage of the growing gap between the price-to-earnings ratios of US companies versus European ones,” said Cathal Deasy, head of European M&A at Credit Suisse. “We would expect to see a continuation of this trend of US companies using shares as part of deals to buy European corporates.”

Bankers said they expected to see large companies, such as Dutch conglomerate Philips and Anglo-Dutch consumer goods group Unilever, pursue carve-outs of parts of their business in the first half of 2021 that will also add to activity.

However, they added that if public markets continue to bid up the value of certain assets that it will become harder for bidders to compete with equity market investors. 

“There is a perception that public markets are willing to pay inordinately high multiples, particularly for growth assets, which means every sellside process is being dual-tracked with an IPO option,” said Alison Harding-Jones, head of M&A for Europe, the Middle East and Africa at Citigroup. “Prices are very definitely inflated and there is so much cash being pumped into the markets that there is a feeling this is going to continue.” 

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What is in the EU-China investment treaty?

After seven years of talks the EU has secured one of its top priorities in relations with China: an investment agreement that Brussels insists will resolve longstanding problems faced by European companies.

But the agreement is likely to be controversial with human rights advocates, given allegations of abuses in China. It could also create friction with the incoming US administration of Joe Biden, who has made clear that he wants an alliance with the EU to bring joint pressure to bear against Beijing over aggressive trade practices. 

Businesses will also now want to study the small print of the new rights created by the agreement, and how they will be enforced. 

1. What does the deal do for the EU?

The deal tackles a number of EU grievances.

These include longstanding concerns that the bloc’s companies are being forced to share valuable technological knowhow in exchange for being allowed to compete on the Chinese market, along with fears that the country’s state-owned enterprises are unfairly favoured and that the Chinese system of state subsidies is opaque. 

The deal will “significantly improve the level playing field for EU investors”, including by “prohibiting forced technology transfers and other distortive practices”, the EU said in a statement.

Other parts of the deal concern specific sector-by-sector market access rights, removing barriers such as requirements for companies to have partnerships with local firms in joint ventures, and eliminating caps on levels of investment.

Areas where EU companies will win enhanced access rights include the automotive sector, telecoms equipment, cloud-computing, private healthcare and ancillary services for air transport. The deal will also put the EU on the same footing as the US when it comes to operating in the Chinese financial services market.

2. Does it resolve problems in the EU-China trade relationship?

Working with molten iron at a Dongbei Special Steel mill in Dalian, Liaoning province, China © Reuters

Speaking to the Financial Times on Wednesday, Valdis Dombrovskis, the EU’s trade commissioner, cautioned that the deal “is not a panacea to address all challenges linked to China, but it brings a number of welcome improvements”. 

Crucially, the investment treaty is far narrower in scope than the comprehensive free trade agreements that the EU has negotiated with the likes of Canada, Japan and — most recently — the UK. It essentially covers certain non-tariff barriers to business and investment.

Mr Dombrovskis identified overcapacity in steel production, unequal access to public procurement contracts and trade in counterfeit goods as issues in the EU-China trade relationship that the deal could not address.

The EU is also seeking to tackle broader issues, such as China’s use of industrial subsidies, through reform of the World Trade Organization.

“This agreement is just one element, just one thread in a complex tapestry of the EU-China relationship, and of course it is clear that many complex challenges still need to be addressed,” Mr Dombrovskis said.

3. What does China get out of it?

For China, the deal is good diplomacy: the incoming Biden administration in the US has made clear that it wants to build an alliance of democracies to put pressure on Beijing over both its human rights record and aggressive trade practices. The deal on the investment treaty strengthens ties with Brussels at a pivotal moment. 

China entered the talks with fewer market access goals than the EU, which argued that it was the victim of an unlevel playing field. Still, the deal locks in existing rights for Chinese companies in the EU market at a time when the EU is looking to expand its legal arsenal against unfair foreign competition.

It also offers China new openings in manufacturing and the growing EU market for renewable energy.

EU officials stress that the market opening on renewables is limited (capped at 5 per cent for each EU member state market) and contingent on reciprocal openness from China.

4. How will the deal affect relations with the new US administration?

Valdis Dombrovskis, EU trade commissioner, said the agreement brought a “number of welcome improvements” © Kenzo Tribouillard/Pool/AP

The EU has taken a risk by pushing ahead, particularly in the light of its parallel efforts to revive the transatlantic relationship after severe tensions during Donald Trump’s presidency.

Just four weeks ago, it publicly urged the US to join it in an alliance to assert the interests of the democratic world against “authoritarian powers” and to meet the “strategic challenge” of China.

Critics say the EU deal undermines that call for partnership; the EU insists that it is merely winning similar trade benefits to those established in the so-called “Phase 1” trade deal struck by Mr Trump with Beijing. 

The EU also argues that the deal can help other countries be more assertive in their dealings with China by establishing a new reference point in terms of commitments from Beijing.

“We want to engage very closely with the US,” Mr Dombrovskis said. “I am not seeing the Phase 1 deal or our comprehensive agreement on investment as hindering this co-operation in any way.”

5. Is the deal consistent with EU goals on human rights?

The EU claims that “universal, indivisible and interdependent” human rights are “at the heart” of its relations with other countries. But the accord has raised concerns among rights activists because of allegations — denied by Beijing — that Uighur Muslims detained in the western region of Xinjiang are being used as forced labour. 

The bloc says it has won unprecedented commitments from Beijing, including that China shall make “continued and sustained efforts” to ratify two International Labour Organization conventions against forced labour — but human rights advocates argue this does not go far enough as a guarantee. 

Reinhard Bütikofer, chair of the European Parliament’s delegation for relations with China, wrote on Twitter on Tuesday that “it is ridiculous [for the EU] to try selling that as a success”.

The EU emphasises that the agreement includes a strong “implementation and enforcement mechanism” that covers the commitments on labour rights, as well as other dispute-settlement arrangements.

Mr Dombrovskis said that neither the Phase 1 deal with the US nor a Regional Comprehensive Economic Partnership agreed this year by Asian and Pacific countries have “sustainable development commitments coming anywhere close” to the EU-China accord.

Tensions over this point are certain to feature prominently during the EU’s work on ratifying the agreement — a process that will require endorsement of the deal by the European Parliament.

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Five ways the pandemic is making the world less equal

The coronavirus pandemic is worsening global economic inequality in an array of ways, both geographically and socially.

As the first vaccines roll out, the spread of the virus is expected to decline in the coming months — but its economic impact is likely to linger, economists warn.

In a recent interview, Nobel laureate Angus Deaton said that rising inequality has “a lot has to do with jobs”; restrictions on activity that were introduced to combat the pandemic have hit poorer workers particularly hard, driving the greatest loss of global output in modern history.

As a result, the IMF estimates that income inequality rose more sharply in 2020 than it did in previous economic and financial crises.

Because the pandemic has increased inequality between nations, as well as between households, a decade of progress in reducing inequality has been wiped out in developing economies, according to the IMF.

1) Poor workers are becoming poorer

About 600m people work globally in the hardest-hit sectors such as hospitality and retail, according to the International Labour Organization.

These sectors contain particularly high proportions of women, ethnic minorities, migrants, the low-skilled and the young; they also tend to pay poorly.

Line chart of Million of people* showing Pandemic reverses long-term fall in extreme poverty

Sebastian Königs, labour economist at the OECD, said that “more vulnerable labour market groups — notably the low-skilled and workers in non-standard jobs — have been most strongly affected by job and earnings losses so far” which could “further increase existing wealth inequalities”.

Bar chart of % of population reporting worse financial situation than a year ago (December), by income level showing The pandemic has hit those on low incomes hardest

In addition, the informal economy has been hard-hit — and that is where some of the world’s most vulnerable workers are employed. About 2bn people around the world work informally, with limited access to social protection or benefits.

Their loss of income is one of the driving factors behind the World Bank’s forecast that the pandemic will push up to 150m more people into extreme poverty by 2022.

2) Inequality between countries is rising

Inequality between nations has also increased. Poorer countries went into the pandemic with less well-resourced healthcare systems and many have been hit by lost tourism revenue, lower remittances from citizens working abroad, collapsing exports and rising public debt.

Rich countries have been better able to protect their economies from the effects of the pandemic by boosting public spending, leaving developing economies to struggle without the kind of co-ordinated global action that was prompted by the financial crisis over a decade ago.

As a result economist Joseph Stiglitz recently warned that the pandemic “has exposed and exacerbated inequalities between countries just as it has within countries”.

Column chart of Covid-19 related fiscal measures, by type of economy (% of 2020 GDP) showing Richer countries can spend more to support their economies

Also, the pandemic-induced escalation in the pace of technology adoption around the world “risks widening the gap between rich and poor countries by shifting more investment to advanced economies where automation is already established”, according to Cristian Alonso, economist at the IMF.

And in the coming year, differences in access to vaccines is set to add to the divide.

3) The generation gap is worsening

Older people have been far more vulnerable to the health effects of coronavirus — but in most countries younger people are bearing the brunt of the economic damage.

At the height of the pandemic-induced surge in unemployment, joblessness among people aged 15 to 24 in OECD countries was 7.5 percentage points higher than the start of this year, whereas among those aged 25 and over it rose by 3.2 percentage points.

Line chart of % of workers in OECD countries, by age showing unemployment among the young has risen fastest during the pandemic

Pandemic-induced job losses have potentially long-lasting consequences: people who start their career during a recession experience lower earnings for a decade after graduation and report lower self-esteem, commit more crimes, and distrust government more, according to research by Hannes Schwandt, assistant professor of economics at Northwestern University in the US.

The ILO has warned that “exclusion of young people from the labour market” is “one of the greatest dangers for society in the current situation” because of “the long-lasting impacts”.

4) Well-off workers stay comfortable

Around the world, relatively privileged workers have avoided the worst of the pandemic’s economic impact. For example many office workers have been able to shift to homeworking, and for them, lockdown meant reduced spending on transport and leisure while their incomes remained relatively stable.

Up to 40 per cent of those in the ILO’s top income bracket were able to work from home during the pandemic, more than double the proportion among the lowest earners.

And in many countries, as jobs in lower-skilled occupations were cut, the number of professional jobs increased.

Line chart of % of household income showing saving rates soared in 2020

As a result household saving rates have soared in many countries; there is some research to indicate the rise was driven by high earners. Meanwhile lower income people have had to use savings to help pay their bills.

“The poor are getting poorer,” said Gita Gopinath, chief economist at the IMF.

She has called on governments to do more to help workers reskill and move into growing sectors, in order to avoid the pandemic leaving a long-lasting legacy in the form of entrenched global inequality.

5) The rich get richer

The 10 richest billionaires in the world increased their wealth by $319bn in 2020, with technology billionaires accounting for the vast majority of the gain, according to research by Bloomberg. Much of this is to do with rising asset prices; the MSCI global stock index is up 12 per cent since the start of the year.

This was fuelled partly by the success of companies that have experienced a demand boost because of the pandemic, but also because central banks’ efforts to cushion the unprecedented slowdown in activity by pumping massive waves of stimulus into the global economy helped drive up asset prices.

Line chart of MSCI indices, rebased showing Global stock prices in some sectors have soared

Chuck Collins, of the Institute for Policy Studies, said that billionaires’ wealth “is surging” and “many of them are profiting from our increasing dependence on cloud-based technologies, online retail, drug research, telemedicine, videoconferencing — services that have become essential services during the pandemic”.

For example, the combined wealth of Amazon’s Jeff Bezos, Tesla’s Elon Musk and the vaccine producer Zhong Shanshan has increased by more than $275bn since the start of the year, according to Bloomberg.

Although some sectors of the economy such as retail and hospitality have been damaged by the pandemic, and wealthy individuals have suffered from this — Spanish retail magnate Amancio Ortega lost $10bn according to Bloomberg — the overall effect on billionaires’ holdings was limited.

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Trump factor boosts Democratic hopes in crucial Georgia races

Democratic hopes of winning two US Senate run-off races in Georgia and regaining control of the upper chamber have been boosted by clashes between Donald Trump and congressional Republicans over stimulus payments, political analysts say.

The January 5 polls pit Republican incumbents David Perdue and Kelly Loeffler against Democratic challengers Jon Ossoff and Raphael Warnock. Run-off votes are required under state law because no candidate in either race received 50 per cent of the vote in the November 3 election.

Control of the Senate hangs in the balance, and with it the prospects for president-elect Joe Biden to push his agenda through Congress, where the Democratic party controls the House of Representatives. If Democrats win both Georgia races, seats in the Senate would be split 50-50, meaning Kamala Harris, as vice-president, would be able to break any ties.

Mr Trump has cast a shadow over the Georgia races by breaking with his party and pushing for $2,000 stimulus payments to most Americans adults — even after he signed into law on Sunday a $900bn stimulus bill that included means-tested $600 payments.

While the Democratic House this week approved the $2,000 payments, Mitch McConnell, the Republican Senate majority leader, said late on Wednesday that the proposal had “no realistic path to quickly pass” in the Republican-controlled upper chamber of Congress.

National public opinion polls show the majority of Americans support bigger payouts — and in Georgia, political operatives are warning that Democrats have been effective in placing the blame for Washington’s stalemate squarely on congressional Republicans.

Data for Progress, a progressive pollster, conducted a survey of likely Georgia voters last month, and found 63 per cent said they would be more likely to vote for a candidate who supported an additional coronavirus relief cheque, compared with 10 per cent who said they would be less likely.

“It is being played pretty heavily here that Republicans don’t care about you, and don’t want you to have assistance during this crippling pandemic, and Democrats do,” said Bill Crane, a veteran political analyst in Atlanta who has worked for candidates in both parties. “Those are the messages that are getting a lot more airtime, a lot more pick-up.”

More than 2.5m people in Georgia have voted early in the two Senate run-offs, either in-person or by mail, according to the University of Florida’s US Elections Project. Hundreds of thousands more are expected to cast their ballots in-person on Tuesday, setting a state record for voter turnout in a run-off. Run-offs tend to attract fewer voters than general elections.

Almost 5m people voted in the November 3 election in Georgia, which resulted in Mr Biden becoming the first Democratic presidential candidate to win the southern US state in almost three decades. Mr Biden defeated Mr Trump in Georgia by a margin of just under 12,000 votes, leading the president to make baseless claims that the result was rigged against him.

Democrats and Republicans agree that the two run-offs are also likely to be decided by narrow margins. A FiveThirtyEight average of recent polls shows Mr Ossoff leading Mr Perdue by 1 percentage point, and Mr Warnock leading Ms Loeffler by 2 points — both within the margin of error.

Mr Ossoff and Mr Warnock, who are running co-ordinated campaigns, have made economic relief a core message, first calling for $1,200 stimulus cheques to be included in the package that Mr Trump approved on Sunday.

Republican incumbents David Perdue and Kelly Loeffler have both come out in support of Donald Trump’s call for $2,000 stimulus payments © EPA-EFE

The Democrats upped their demands this month after Mr Trump called for $2,000 payments and Nancy Pelosi, the Democratic speaker of the House, endorsed his request.

Mr Perdue and Ms Loeffler initially stayed quiet on the need for more stimulus cheques, and Mr McConnell reportedly only signed on to the $600 direct payments amid growing concerns about the Georgia races.

The New York Times first reported two weeks ago that Mr McConnell said in a private phone call that the Republicans were “getting hammered” for lawmakers’ failure to agree on another round of economic relief.

After a deal was reached on Capitol Hill shortly before Christmas, Mr Perdue and Ms Loeffler championed the $900bn relief bill — before changing their tune this week to remain in lockstep with the president.

In separate Fox News channel appearances on Tuesday, both Republicans said they had decided to endorse the $2,000 payments. Mr Perdue said it was “the right thing to do for people in Georgia”.

Mr Ossoff accused his Republican opponent of caring “about himself, not the people of Georgia”. Mr Warnock struck a similar tone, saying Georgia voters could not “trust Kelly Loeffler to look out for anyone but herself”.

GOP strategist Doug Heye said the Republican senators had made a calculated decision to curry favour with Mr Trump, who continued to enjoy support from his rightwing base and was scheduled to hold a rally in rural Georgia on the eve of Tuesday’s elections.

Mr Trump this week tweeted that Republicans “must approve” the $2,000 payments “unless [they] have a death wish”.

“[Mr Perdue and Ms Loeffler] feel that they have to be exactly where Donald Trump is,” Mr Heye said. “It is very easy to see how he could lash out at one of those two, or both of them, and that could cost them the race . . . In a run-off, the one thing that they cannot afford is to have Donald Trump criticise them.”

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