Good Morning,

It was the combination of faltering Brexit talks and a more hawkish ECB that sent the Pound to six month lows versus the Euro yesterday. The Brexit talks had more than a whiff of bad blood in the air, as Europe confirmed that the UK has until the end of the month to scrap its internal markets bill or they’ll be going legal. According to the Times, there are 30 Tory MP’s who are planning to revolt by backing an amendment that would prevent the government from overriding the withdrawal agreement without parliamentary approval. They’ll need to find another ten or so defectors if that’s to be the solution to the problem, as the working Tory majority is around 80 seats. Michael Gove confirmed the government’s position yesterday and that is that they will not be withdrawing the legislation.

Yesterday’s ECB meeting was hawkish from a currency perspective, because Christine Lagarde came straight out with the phrase “we do not target the exchange rate”. There had been hopes from some that the ECB might be persuaded to add more stimulus and quantitative easing to try and bring the euro back into line, having seen it appreciate by about eight percent versus the dollar over the course of the covid crisis. A strong Euro hurts the export driven European economy, but it is exactly because the single market is doing reasonably well, all things considered, that the currency is appreciating. Another reality for the central bank to face up to is that they’re pretty tapped out on monetary policy. Their QE programme is massive, they’re buying just about every asset they can get their hands on and interest rates are well below zero, so moving those levers further to hope they can shift the needle on the FX rate would be worrying.

The Pound’s diminishing returns were halted overnight  as news that Japan and the UK could reach an agreement on a trade deal today. It won’t be signed off, but the prospect that there is someone out there that we can agree with was enough to stem the flow for the time being. Earlier this morning we saw July GDP numbers come out a fraction below expectations, but this was good enough to keep the wolves from Sterling’s door. The 6.6% GDP growth in July was lower than June’s 8.7% rebound, which does mean that the V shaped recovery is looking more and more lopsided. Currently we’re only about half way to making up the GDP ground lost to the pandemic and if we continue to lose steam then it will become exponentially harder to make that return.

There are calls from the Treasury Select Committee for the government to consider a targeted extension to the furlough scheme. They say that universally turning off the tap in October would risk mass long term unemployment and also lead to firms that would have a viable long term future failing in the short term.  They also identify that skills development and training is going to be essential. The BBC has the story.

In the US: The latest attempt to get further covid bailout funding approved has failed. This time it was Republicans bringing the bill (which was always believed to be dead on arrival) and the Democrats shooting it down. Despite the Republicans knowing it was going nowhere, they had been under pressure to table something to bolster their argument on the campaign trail. Now they can use the “we tried, but those guys were more interested in politics than helping you get through this” line. The chasm between the two parties on what they think is a sensible relief package is so wide it is unlikely that they’ll get anything through at all now.

Microsoft has warned that Russia, China and Iran are all targeting the US election campaign through hacking and subterfuge. The company has seen increased cyberattacks against both parties and dozens of associated organisations. China is probably pitching for a Biden victory, whilst Russia backs Trump. Though Microsoft have identified the activity and tried to shut it down, it’s unlikely that it’s going to go away. As such they want it to be widely known that it is happening so individuals can be mindful of the undue influence they’re facing – additionally they could watch ‘The social Dilemma’ on Netflix and work out just how much manipulation their lives are subject to without foreign actors.

Trump has said that there isn’t going to be an extension to ban TikTok in the US if it stays under its current ownership. The president has said that if it’s not sold by the 20th September then they’ll be shut down in the US. Currently they’re entertaining a number of interested parties and working out how they might separate those assets without giving away all of their IP. They’re also suing the administration for what they call a “heavily politicized executive order”!

Today’s data has largely been and gone, with the UK GDP number. We will get comments from Michel Barnier on how Brexit talks have gone (spoiler alert: badly) which might move things, though the market is very much in a negative frame of mind, so if we get any kind of optimism the Pound will be ready for a reversal of fortunes.

Have a great weekend


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