Stage three of the easing of restrictions is exactly as expected,  with indoor dining,  hotels, cinemas and other relatively close contact leisure pursuits (including hugging) is good to go for Monday.  The news will no doubt continue to fuel the surge in consumer activity,  which in April rose above pre-pandemic levels for the first time this year,  according to Barclaycard.  Their data show April ’21 spending up 0.4% on 2019 whilst the BRC retail sales numbers showed retail was up 7.3% in April compared to two years ago – all boding well for the biggest GDP gain for 70 years. The data helped give Sterling a lift,  finally breaking out of its incredibly narrow recent trading ranges – though still comfortably within the parameters that were carved out early on in the year,  with the big move higher following the post-Brexit sigh of relief.

Speaking of Brexit (#seamless), The FT is running a piece that talks about the effects finally being felt in the service sector now that restrictions on travel and movement are starting to be dialled down.  They point to musicians being an obvious example of an industry that can now no longer get back to business as usual and book a European tour,  but it’s also becoming more prevalent that people travelling for business are being questioned as to their activities and the requirement to have visas or a work permit.  A wider analysis of the services sector by McKinsey shows that it’s a myriad of industries that will suffer and though financial services gets the headlines with £29bn of exports to the EU, it’s outstripped by “other business services” which accounted for £41bn in exports in 2019.  As the economy moves off life support and starts to breathe for itself,  it is uncertain if these industries will be able to continue to grow at the pace they had enjoyed within the EU,  not just because they can’t export as readily but because they also don’t have as easy access to the talent pool that EU provides. They talk about regulated businesses likely to suffer the biggest barriers to entry and of those businesses,  the smaller ones being the ones hit hardest as they lack the resources to get what they need to do business in Europe.  The pandemic has made direct comparisons of pre and post-Brexit,  but that shouldn’t mean that every effort isn’t made to support businesses,  something the government says they are doing with “helplines,  webinars and £20m allocated to help SME’s through the challenge”. This is a long article, but well worth a read.

Across the Pond:  former New York Federal Reserve president Bill Dudley thinks that interest rates are going to have to go much higher than the markets think when they do start rising,  possibly up to 4.5%. Currently futures markets show traders think rates will peak no higher than 2% by 2027,  but he thinks that this is too low for a couple of reasons;  the long term historical average interest rate is higher than 2% and if inflation remains above 2% then rates will have to move above that level to get to an inflation adjusted positive rate of return (if inflation was at 2% and interest rates at 1% the net would still be that inflation erodes value). He thinks that the higher inflation gets,  the bigger the adjusted rate of return needs to be and therefore if inflation averaged out at 3% then rates would have to be north of 4% – which as he points out,  seems really high but in reality is still lower than we were after the Fed tightened monetary policy back in 2008 before the crash when rates peaked at 5.25% in the US – the UK was at 5.75% in Summer 2007.

The Pipeline that was shut down by hackers last week remains closed and isn’t likely to be fully back online for several more days. Reuters is calling it one of the most disruptive ransom schemes ever reported, as the pipeline carries 50% of the fuel that the East coast uses.  Panic buying has been reported at petrol stations and could force petrol to its highest price since 2014.  The UN has said that this attack has shown the world that combating cybercrime needs to be a priority to avoid a “devastating impact on the world that we all live in”,  whilst US lawmakers are likely to call for Federal funding to increase critical energy infrastructure security.

Looking at today:  Markets are likely to follow the US and Asia lower, but the data calendar is pretty light save for some German data and a slew of central bank speakers.  We’ve also got the Queens’s Speech, where she’ll set out the parliamentary agenda for the year ahead.  It’s a big agenda and not without controversy (curbs on peaceful demonstrations,  photo ID to be able to vote,  less say in the planning agenda), so no wonder the security around Westminster is tight this morning!  There are some less controversial measures in there, such as making student loans accessible to anyone at any stage of life to enable a skills led recovery – Here’s the BBC’s rundown on what to expect.

Be well


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