Good Morning,

Peter Navarro is a name we’re hearing more of lately. The President’s trade adviser was responsible for a brief collapse in risk sentiment last night as he said that the US China deal was over, blaming coronavirus for it. Markets sold off very quickly on the news which then got Trump involved on Twitter to contradict Navarro and confirm that the “China trade deal is fully in tact”. The move lower in markets was eventually reversed, but does show that markets do indeed have some sensitivity and it’s not just ‘buy at all costs’ for fear of missing out. The move might inadvertently lead to Trump taking a softer line with China too as the stock market is going to be one of the two pillars of his re-election campaign, providing it stays up at the highs and seeing how markets reacted to this hard talk might mean he rows back a little  – or at least encourages more back channel progress on deals whilst he beats the anti-China drum outwardly.

The Washington Post has an interesting article this morning about how the virus is changing the way people are voting in the US. They point to recent state wide elections where postal vote numbers have been overwhelmingly high and have led to the vote count taking up to a week – with votes that were posted on election day being counted, even if they weren’t received on time. If this theme continues into presidential election day in November then we could see the event unfold over days rather than on the night and that could mean discontent, cries of foul play and things getting litigious. The increase in postal votes is incredible, with Nevada’s primary vote seeing nearly half a million postal votes, compared to just 25,000 in 2016 – now multiply that across the country and the problem makes sense!

Staying in the US: The New York Fed are talking about the benefits of a possible ‘yield curve control’ policy being brought in by the Federal Reserve to manage long term interest rates and keep certain sections of the bond market under control. The policy means the Fed can target specific bond maturities to purchase, to keep prices in check and smooth out any anomalies in long term debt. The NY Fed’s view is that even though the jury is still out over its long term prospects, it has meant that central banks that have adopted it have been able to spend less money in asset purchases to achieve their desired outcomes – in Japan they’ve spent about a quarter of what they previously did in asset purchases once they adopted the strategy.  More noises around this policy and arguments like this are only going to reinforce the market’s position that this is the Fed’s next step into monetary policy experimentation. There’s an interesting Bloomberg article entitled “A ‘buy everything’ rally beckons in a world of yield curve control” which sums up their views on what happens to markets if they go down this road.

Continuing on a central bank theme, Andrew Bailey made some rather candid comments to Sky News when he said that had the Bank not intervened then the government might not have been in a position to fund itself when markets collapsed in March. He said that investors rush for cash meant there was no demand for government bonds which the government needs to sell to pay its bills. The Bank of England stepped in with its asset purchases and avoided the embarrassment of the government having a bond auction that was undersubscribed. Additionally the BoE governor has said that there will be many viable companies that don’t survive the crisis, pointing to the long term damage that will be done by what’s gone on these last few months.

Whilst we’re on the UK: We’ll hear later on today about the plans to let us back out to the pubs on the 4th July. In addition to the local watering hole, we’ll be able to go and get a haircut, go to the local art gallery and even see a film at the cinema. The interesting part of all of this will be whether the government provides enough detail in its plans for these establishments to be able to open in the confidence that they are fully complying with the rules of engagement – so here’s hoping we get a robust document to accompany the likely pseudo-Latin announcement (and then let’s hope Sir Keir Starmer gets a good look at it before PMQ’s tomorrow!)

The FT is reporting that Japan has given the UK just six weeks to get a trade deal done. The time limit means that expectations will need to be kept in check on what can be achieved and potentially also risks the UK not getting the best deal out of the situation – though it will be based on the existing Japan-EU framework, so there’s a very strong foundation – However if the government can pull it off it will set the tone for other deals to come and prove that bureaucracy needn’t stand in the way of good intentions.

Looking at today: the main events are PMI readings in both services and manufacturing from Europe, the UK and the US. Additionally we’ve got Fed member Bullard speaking on monetary policy, so we’re expecting to hear if he’s down with YCC.

Be Well


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