Good Morning,

The problem with high expectations, is that you’re easily disappointed. This will be the risk we face today with Rishi Sunak’s summer statement. The chancellor’s likely giveaways have been much publicised, so knowing what’s likely to come – stamp duty pause, VAT cuts, work scheme for under 25’s, housing insulation initiatives – is all well and good, however the challenge Mr Sunak now has is to either go all in on the enthusiasm around how these schemes will be the saviour of the economy, or dangle a few more carrots for us all to be excited about and keep us optimistic that there’s more available if needs be.

The interesting part of the statement, if we get it, is how he plans to fund all of this. Tax receipts are on the floor and further cuts to the above means the exchequer’s cashflow will become even more lopsided. The government is going to need to get creative in the sort of debt that it issues, not only to make it affordable for them, but also attractive in the long term. The short term is less of an issue, because the Bank of England will buy anything they’re selling on pretty much any terms offered, but if the BoE are going to sell these bonds on, then they’ll want to be holding something that they can be confident will have a demand that isn’t purely driven by a big haircut to the face value.
Ultra-long bonds, perhaps even with no maturity date that jut keep on paying a coupon until the government buys them back, are an option. So are ‘green bonds’ which are being very warmly received on the continent and appeal to a broader investor base, where the funds raised can only be spent on green or climate related initiatives.

Staying with the UK: There was a bit of interest in the Pound yesterday after reports the EU’s position on fisheries was thawing a little. Up until now the EU had wanted the same fishing policies to remain, limiting UK fishing fleets’ catches to strict quotas and maintaining full access to other countries’ fishermen, which basically nets down currently to the UK having 25% of the fishing quotas in the EU, despite having 50% of the waters. Now Michel Barnier has said that he’s willing to use a ‘zonal attachment’ process, which means that the UK would have it’s own ‘Exclusive Economic Zone’ and the fish stocks within that would be measured and a quota allowed to be taken – the upside for the UK is that would include more fertile waters than elsewhere in Europe.
The important part of this though is that it could unlock the current stalemate at the negotiating table. Yesterday Boris told Angela Merkel on a call that there is still great interest in getting to an early deal, but that he is also prepared to leave the EU with an Australia style deal if they can’t get there.

Hopping across the Pond: There were some comments yesterday attributed to Peter Navarro about his and Trump’s desire to start undermining the Hong Kong currency peg to the US Dollar. The idea would be to limit Hong Kong banks’ access to the dollar, perhaps by reducing or rescinding swap lines which would in turn limit the nation’s ability to buy and sell dollars to in turn keep the currency within defined trading range versus the dollar. The move is obviously a direct retaliation against China, which Trump will no doubt love the idea of, but certainly isn’t without risks, as HK is the third largest financial centre in the world and instability there would rock the world – by way of comparison, when Switzerland dropped their cap on the Euro-Swiss exchange rate the franc soared in value by 30%, with a massive financial fallout along the way.

Another Trump policy under consideration: Banning TikTok in the US, as retaliation over China’s handling of coronavirus. We’re sure this has nothing to do with him having a load of empty seats at recent rallies because TikTok users applied for all the tickets and then didn’t show! Tiktok is owned by ByteDance and is a quasi-private-state owned company, which has raised concerns in a number of countries over what data their citizens might effectively be giving up to the Chinese government – though TikTok have clearly stated that “we have never provided user data to the Chinese government, nor would we do so if asked”
Additionally, The New York Times is reporting that the White House has warned off a federally controlled pension fund from investing in Chinese companies as more sanctions could be on the way for their handling of the coronavirus.

Onto the virus: cases continue to accelerate globally and a lockdown has ben introduced in Australia, with Melbourne ordered into lockdown for six weeks. In Brazil, Jair Bolsonaro has himself tested positive for the virus, but has likened it to the rain, saying that eventually, everyone is going to get wet. India is now the third worst affected country with 700,000 confirmed cases, that sits behind Brazil with 1.6 million confirmed cases and the US just about to pass the three million number – more than ten times the UK’s number. Globally we’re likely to see the number pass 12 million confirmed cases today, having risen from 7.1 million on the 8th June and previously 3.9million on the 8th  May.

In UK retail news, Boohoo goes from bad to worse, having now lost 35% of their share price since Friday. The company has lost contracts with Next, Asos and Amazon as well as a host of celebs that endorsed their products after it came to light that the employment practices of suppliers and factories within their supply chain were akin to sweatshops. Boohoo has countered with the appointment of new non-execs and an independent supply chain audit, but for now it’s damage done and no sign of repair. This will have a number of other fast fashion retailers rushing to ensure that they’re not falling foul of public opinion on this one as ignorance has now ceased to be any kind of excuse (we just hope it’s not like the emissions scandal, where everyone was at it, but VW were the first to be caught)

Looking to today: Stocks have moved lower as we get going, that’s despite a pretty decent Asian session. We’re quite light on data today, but we do get a load of oil inventory data this afternoon and the feeling out there is that stockpiles are building up, so this could tank the price (pun fully intended). Rishi Sunak will be live at about 12:30, but you might as well tune it at 12 to get a couple of rounds of PMQ’s!

Be well.


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