Good Morning,


UK Government
The government has agreed a deal to re-open one of the two shuttered fertiliser plants that supply CO2 to the UK market. The government stressed in its announcement of the news that “the exceptional short-term arrangement… will provide limited financial support for CF Fertilisers’ operating costs for three weeks whilst the CO2 market adapts to global gas prices”, with exceptional and short term being the key takeaways, so we wouldn’t expect them to be entertaining any other industries that are suffering from high gas prices, despite there being a fairly long list of them. The duration of the intervention has also raised questions, as gas prices are expected to be elevated for far longer than that, so it will be interesting to see whether that’s just the starter for Number Ten and they extend the deal, or whether CF has other plans to be able to pass their cost increases along the food chain. For now though, we’ll breathe a sigh of relief that major disruption has been averted and look forward to some kind of resilience plan that means we’re not dependent on such a narrow banding of suppliers for such a critical product.

Russia has been urged by the International Energy Agency to do more to supply Europe with gas. The IEA believe that Russia has got the capability to deliver more product to Europe and though they are sticking to contracts, they are currently delivering less than they were before the pandemic. The IEA have called this “an opportunity for Russia to underscore its credentials as a reliable supplier to the European market”. As it currently stands, this is a reminder of the dependency that Europe has on Russia and the imminent increase in that dependency once the Nordstream 2 pipeline goes live. Invariably there’s going to be some negotiation around what can be done and how quickly, but on the face of it Russia appears to hold more cards than Europe.

The FT has the story:


US & UK Trade Agreement
Boris Johnson sat down with Joe Biden in the Oval Office yesterday and the President used the opportunity to remind the PM just how important the Good Friday Agreement is to him and that basically a trade agreement would be contingent on that being upheld. A bilateral agreement between the US and UK doesn’t seem to be the highest priority of the Biden administration and it is now possible that the UK could join the US-Mexico-Canada trade agreement instead. Signing up to the North American Free Trade Agreement would be a big anti-climax from the much hallowed Us trade deal that we’d get in a post-Brexit world, but it would be a much quicker route to market, though we do already have deals in place with Mexico and Canada. Boris was quick to confirm to Joe that they were on the same page when it comes to the Good Friday agreement, but will be doing a tour of Capitol Hill today and is likely to bring up to other US politicians the problems in implementing the Northern Ireland protocols that we are facing.

Chinese property giant Evergrande has said that it is able to meet one of the three interest payments that it has due tomorrow. It confirmed that it would make the payment on its Chinese traded bond, but didn’t confirm whether it had the cash available to settle its offshore interest payments that are also due. The news that they’re making good on their local repayment was enough to settle risk appetite, but the concern will come tomorrow if they don’t stump up $130m tomorrow on the offshore coupons and therefore set themselves on a path to default with international creditors. The Reserve Bank of Australia has said that they’re watching the situation closely, as no doubt Aussie banks have a lot of exposure here, whilst the IMF have said that China has the tools and the policy space to avoid Evergrande becoming a systemic crisis – the question is whether they choose to use them, or if they use this opportunity to overhaul an industry that they might not view too favourably.

The Federal Reserve
Tonight, the Federal Reserve make an announcement regarding how they are going to taper off their QE program, if they are at all. The press conference is at 7:30pm GMT. Some regional Fed presidents are looking to begin paring in September to offset the US housing market, which is running hot, so that they can begin lifting rates as soon as possible. This seems far too soon, and it would likely result in a market shock should it become a reality tonight. Other regional Fed presidents have put together a compelling argument for patience. It seems like a tall order to assuage the fears of economists regarding the surge of the Delta variant, considering there were over 160,000 cases yesterday, therefore it would be prudent to at least take the time to measure the economic impact, before deciding.

Once Fed Chair Powell makes a decision regarding tapering, the next topic open for debate will be how long to taper for. St Louis Fed’s James Bullard is keen to push for a quick taper, to ensure the it is complete by the end of Q1 2022. The consensus, however, is that the US will take a similar approach to 2014, where it took around 10 months to fully wind down. This is projected in the economists’ forecast below as to when rates are likely to be hiked, not showing a rise until 2023. These are the current expectations, so should the Fed continue this narrative, then we do not anticipate a tremendous amount of volatility, should the tone change to a more Hawkish one, then that is likely to be reflected in currency rates almost immediately.


Have a great day.


This Morning Report was brought to you by Alex Ayoub


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