Good Morning,

Unemployment at 15% and rising, nationwide protests with varying degrees of violence, a president that wants to ‘start shooting, when they start looting’, some cities that are still meant to be in lockdown and yet the S&P 500 manages to find a reason to move higher! The backdrop to yesterday’s trading was the strangest that we’ve seen for a while – which is saying something given the last few months –  with the President’s list of crises to deal with seemingly getting longer by the week and yet aside from a weakening dollar, there really wasn’t anything to indicate that the world isn’t in a completely normal state of being.

The dollar moving lower was amplified in Sterling yesterday as we saw what might be a welcome sign of compromise in the Brexit negotiations: The Times report that the UK is willing to negotiate on the fishing and level playing field policies, if the EU are willing to step away from their “maximalist” demands on regulatory alignment and fishing access. The report was welcomed by traders who used it to build upon the pound’s already boosted position, which puts us back at the upper end of what we’ve seen against the dollar of late and at least off the ropes versus the euro. Any inkling that talks with Brussels aren’t at stalemate is pretty welcome at the moment and though it looks unlikely that the UK government will formally request an extension, willingness being shown on both sides is enough, for now, to keep the hope that common sense will prevail and a deal will get done (though from a market perspective, as we’re all well aware by now, this position could change tomorrow)

Staying in the UK; there is talk that the government could drop its plan to quarantine arrivals into the UK for 14 days. The ‘unworkable’ plan has been criticised by just about everyone and could well be replaced by “air bridges” that would allow those travelling from countries with lower rates of infection enter the UK freely. These could be in place by the end of the month, according to the Telegraph, but it is unclear whether it will be a two way flow of travellers as there are plenty in Europe that worry that the UK isn’t as far along the path of getting the virus under control as they are. Airlines have tentatively put plans in place to get between 30 and 50 percent of their flight schedules back up and running over the summer, so are welcoming anything that doesn’t involve people being forced to self-isolate for the entire duration of their two week holiday.

Another Telegraph story worth a read is that of Rishi Sunak apparently planning to give companies a national insurance holiday. The plan would be to give companies that hire staff a holiday period where they won’t have to pay NI on these hires and there could be further incentives to encourage people to go out and recruit. According to the article, Rishi Sunak is keen to ensure the economy is on a strong upward trajectory before he starts raising taxes to pay for all of this and as such there are likely to be announcements in early July on how they plan to do this, which probably include bringing forward the infrastructure spending that he announced in his pre-lockdown budget.

Former UK Prime Ministers Sir John Major, Tony Blair and Gordon Brown are three of 225 high profile former world leaders who have signed a plea calling for an emergency G20 summit and an agreement to create  $2.5trillion support package for developing countries. The letter says the action can’t wait until the scheduled November meeting and though the previous pledges of the G20 have been welcomed, they basically need to double up on the money and the speed at which they are acting, if they want to try and get on top of this. Though developed nations are coming out of lockdown, the number of new cases daily on a global basis continues to rise and we’re now at 6.3 million, having jumped by 1.3 million in the last 12 days.

US-China relations continue to go from cold to frosty, with China now telling some state owned companies to stop buying US soybeans and pork products altogether, adding to the hold on US cotton and corn. The South China Morning Post has an interesting piece on whether Washington will take the ‘nuclear option’ and kick out China from the US dollar clearing system, like they have Iran. The move seems unlikely, as the US still relies heavily on Chinese purchases of US debt and also enjoys the dominance of the dollar as the world’s reserve currency – a status that would diminish all the quicker with the world’s second largest economy unable to trade in it. China is slowly liberalising access to their currency, but it still only accounts for about 5% of global trade, compared to the dollar’s >85% role in the global financial system.

Oil continues to be on the rise, as reports that Trump and Putin had a talk about it in a fairly wide ranging call. OPEC+ are also set to meet virtually later on and expectations are that they will go a step further with production quotas to ensure we don’t go back to massive oversupply situations.

Today we’re quite data-light, having already seen the Australian central bank leave rates and QE levels unchanged. Later today we get another couple of UK debt auctions, which will be of interest to Sterling traders who want to ensure there’s still plenty of demand for the IOU’s that Rishi is writing.

Be Well


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