Good Morning,

It isn’t as bad as the Bank of England first thought, but by no means is a smooth recovery a done deal. That was the message from Andrew Bailey and co. following their MPC meeting yesterday. The Bank’s forecasts for the decline in activity in Q2 were revised up from -28% to -20% as they said that an earlier re-opening and the speedy work of retailers and logistics companies in ramping up online shopping capacities meant that there were some cogs still turning in the locked down machine.

They’re not sure it’s going to stay like this though, with the team fairly evenly split on whether it will be a V shaped recovery, or whether the uncertainties around job retentions post furlough means that consumers will dial back their spending and in turn slow us down. They think unemployment will peak around 7.5%, with many people able to return to work over the coming weeks, but they’re also of the opinion that winding down the furlough scheme is the right thing to do, arguing that keeping people in jobs that aren’t going to have a long term future in a post covid world doesn’t make sense. Instead resources should be invested in training and creating jobs for the digital economy, which will be much more sustainable.

The Bank of England played a great card with negative interest rates, saying that they are very much in their tool kit, but that they’ve got no intention of using them for the time being. This gave the Pound a bit of a boost, as markets were concerned that they’d be dipping their toe in the negative yield world straight away.

Other UK news that we’ll notch up as a positive is a development from the government, who are making plans to keep goods moving with a ‘Trade Support Service’ in Northern Ireland.. The service will be free to use and will put the onus on government to deal with all of the new paperwork and processes it wil ltake to get goods across the border with the Republic in a post Brexit world. It’s very welcome to have some concrete preparations in place instead of just radio adverts encouraging us to be prepared without saying how, but government departments don’t always have the best track records – especially if there’s a new IT system involved. Michael Gove will put some more details to this later today. Reuters has the story.

Across the Pond, Trump’s got his pen out again: He signed executive orders against the parent company of TikTok, Bytedance. The order bans US companies from doing any business with them or their subsidiary companies at any point after the 20th September.
The window between now and this going live has meant that Microsoft has had to speed up the negotiations on its possible purchase of TikTok, but could well get the deal across the line in time. Not ones to shy away from a challenge, Microsoft have also increased their appetite for the company and now want to take on the company’s entire global operations, instead of just the US and a handful of other territories. Taking the whole thing over makes perfect sense for them and with more than $130bn in cash, easier than ever access to capital markets and an acquisition that will generate loads of recurring advertising revenues, it’s got to be a great trade.
It’s not without risks though, as China are viewing this as a hostile takeover orchestrated by the White House. China is a profitable market for Microsoft and if people take umbrage and vote with their feet, it could be a costly acquisition. Adding to the costs of doing business, Trump has said that if it does get bought, the US Treasury will be in for a payday from the acquirer.

Trump could get the biro back out of the drawer this afternoon if lawmakers there can’t get this deal across the line. He said yesterday that he’ll take matters into his own hands and sign something today or tomorrow to ensure unemployment benefits get paid, along with payroll tax breaks, eviction protection and student loan repayment deferrals – the cynic in me thinks the last one might have something to do with people with degrees voting overwhelmingly in favour of Hilary in 2016 and him throwing them a carrot to try and tempt them over the line.

There’s an interesting article on the Dollar on Zerohedge this morning; specifically the reducing role it’s playing in China-Russian trade. Both countries have made a concerted effort to reduce their dependency on the dollar -which isn’t as easy as it sounds when your trade is heavily weighted to dollar denominated commodities – but it’s now present in less than 50% of transactions for the first time. The article also touches on the global diversification away from treasuries and into gold, something that seems to be gaining ground. It’s a worthy read.

Today is non-farms day and we’re looking forward to seeing how this one plays out. The dollar has had a shocking few weeks, but the pace of the moves has declined this week, if they can get a half decent print on this number then maybe investors take some profit off the table and the dollar reverses a fraction of its losses. Maybe.

Have a great weekend.


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