Good Morning,

We’ll start across the Pond this morning, specifically with a New York Times article, which is calling for a state by state lockdown in the US to try and crush the virus outbreak and get the reproduction rate there down to European levels. The article starts with the quite incredible fact that when the World Health Organisation announced a public health emergency there were 9,349 cases globally and six cases in the US. Fast forward six months and we’re at 20 million cases, five million of those in the US, and 730,000 deaths worldwide.
The article talks of the need to get case numbers down to one new case per 100,000 people per day in order for their public health system to be able to contact trace, enforce mini-lockdowns and continue to reduce the spread from there – currently it’s around 17 people per 100k per day. They argue the only way to do this is to do what most of Europe did back in April and lockdown. They also say that the costs of funding the pandemic can be financed domestically, as the savings rate in the US has risen from 8% to 20%, with more people spending less of their disposable incomes. If this additional saving were used to purchase US government debt, much like war bonds, then the US could effectively self-finance the effort – we’re not sure whether the numbers stack up and wouldn’t have a clue how or where to start calculating that, but if it is a possibility it should definitely be examined.

Also from the US: Trump did go on to sign those executive orders. They’re pretty much as expected, with an expansion of the unemployment benefits from $600 per week to as much as $1,000 per week – though individual states will now have to pick up 25% of the cost of any additional benefits a person might receive. This may sound like a win, but most states won’t be able to afford their contribution, so without them being able to provide their share, the individual won’t get anything. Additionally, because this is outside of the normal federal process there is no system in place, which means a potential lengthy roll out. Additionally there is eviction protection – but not to the level that it was before the previous protection bill expired last week. The payroll tax cut isn’t a cut, but a deferral, meaning people are still going to owe the money, just further down the line. Student loan payment holidays have been extended to the end of the calendar year and interest on the rollover is suspended. This looks like the one executive order where the steak lives up to the sizzle, all the rest are great headlines and little else, now it will be back to Congress to try and get a proper deal over the line and actually deliver something beneficial.

In the UK, a think tank has warned that the government has made ‘unforced errors’ in their process of rushing around to sign trade deals. The Institute for Government warns that the UK’s own unclear position on the standards that it wants to adhere to with post-Brexit trade deals risks us having to take lower standards as part of trade deals done with third countries. The main crux of the issue is us potentially accepting lower food standards to allow US imports, which has been a bone of contention pretty much from the get go. As well as those low standards potentially causing conflict with other nations’ trade deal aspirations, they risk causing unease at home; Nicola Sturgeon wants to be able to prevent these products reaching Scotland, but Boris is legislating to defend the UK internal market – those two aren’t friends at the best of times, but this will be another easy win for Nicola Sturgeon to talk about how Scotland is governed by London and to bang the drum for independence. The FT has the story.

There is a reasonably light data calendar this week and traditionally the second and third weeks of August are the quiet ones from a trading perspective. There is unemployment data from the UK tomorrow and though it’s unlikely to make for pleasant viewing, it could be the tip of the iceberg with the guardian talking about an Adecco survey that suggest as many as one in three employers will be letting people go, come October and the end of the furlough scheme. Later I the week we’ve got a GDP reading from June and the preliminary number for the second quarter. The Bank of England last week suggested that the fall wasn’t as big as expected and the market is targeting a drop of 21%. The June month GDP will be an interesting read though, as it is expected to come in at 8%, any lower and we’ll be questioning the Bank’s expectations that a V shaped recovery is still on the cards.

Be well.


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