Good Morning,

Friday afternoon’s trading session saw Sterling sold-off over fears that the Brexit talks weren’t going as planned – which was then subsequently confirmed at the EU press conference, when Michel Barnier said that the UK wants the best of both worlds. The two main sticking points from this round of talks are fishing rights and the ‘level playing field’, the latter the UK regards the EU as having “novel and unbalanced proposals” for and is not going to conclude an agreement on. With regards to fisheries, the Times is reporting that Brussels are going to back down on their position come the next round of talks, but that this could be a two-way street as the UK’s chief negotiator is looking for easy trade-offs to be able to bring to the table and he’s confident a deal can be done. The report gave Sterling a bit of a boost in this morning’s session, but it wasn’t just Brexit talk that was hurting its value over the weekend…

Bank of England chief economist Andrew Haldane was talking to the Telegraph at the weekend and spoke about the bank looking “with greater immediacy” at their options for further monetary stimulus. He spoke about the possibility of going lower down the ratings ladder when purchasing corporate bonds, as other countries have done, but also at the possibility of negative interest rates. The talk of the bank charging money on deposits was enough to send Sterling down to lows that we haven’t seen since late March.
In the interview he also puts a bit of context around the growing government debt pile, which is likely to move back above 100% of GDP, by saying that in the 19th and 20th centuries, debt has spent more time above 100% of GDP than below it and because rates are so low, the cost of servicing government debt is as low as its been since the early part of the 20th century, so we’re not exactly sailing into unchartered waters here.

Other UK news; the government is considering banning dividends and having oversight on executive remuneration for companies that took up the Coronavirus Large business Interruption Loan Scheme financing. The dividend freeze comes on top of already dwindling returns for shareholders, with global dividend payments set to fall by as much as 35% this year, adding insult to injury as share prices have fallen so hard and now there isn’t any dividend income to soften the blow.

In Europe; there’s a certain sense of irony to a Reuters article this morning… Where plenty of people have been urging countries to ‘spend now, count later’ with their efforts to prop up economies, the head of Europe’s competition commission says that doing so will meant that those with the firepower available will give themselves an unfair advantage and that in the long run this only makes getting back to a competitive level playing field all the more difficult! The article comes as a precursor to an interview with Margrethe Vestager that will be published later today in a German newspaper – so here’s hoping for an interesting read.

In the US; the House of Representatives passed a $3 trillion relief bill, that will now make its way to the Senate to be debated (and probably killed off) The votes in the House were almost completely along party lines, with the slim Democratic majority getting it across the line and on to the next stage. Even if it were to get through the Senate, the White House has already said that they would veto it.

Trump’s been firing people again, this time it’s the state department’s inspector general, who had recently opened an investigation into the conduct of Mike Pomeo. The sacking drew criticism from both sides of the political divide, with republicans saying that inspectors general play a vital role in holding governments to account. Democrats have launched an investigation into the dismissal, saying it follows a pattern of politically motivated sackings.
Trump’s also hit back at Barack Obama after the former president called out the White House for not “even pretending to be in charge” and calling their handling of the crisis as an “absolute chaotic disaster”. Trump called Obama “grossly incompetent”. This Guardian article is worth a read on the subject.

Fed Governor Jay Powell has given an interview to 60 Minutes, which if you’ve got some time on your hands might be worth a watch. We’ve started reading the transcript and nothing so far is overly controversial, but there’s a lot to get through so we might change our minds on that. The link is here.

China’s central bank are looking to take a slightly more prudent approach to their stimulus measures and are refraining from buying any government debt or ‘special situation’ bond issues, as they fear that this could lead to inflation bubbles, currency depreciation and possibly a credit rating downgrade. They’ll be continuing their support via the banks by cutting reserve ratio requirements even further and rolling over and refinancing any debt obligations the banks have to maintain liquidity. China’s government are likely to increase their fiscal stimulus efforts to as much as 8% of their GDP this year and there’s also talk of them rolling out even more infrastructure projects – a total of 22,000 projects, with a total bill of more than $6 trillion dollars due over the next few years – as they see things like 5G, high speed rail and massive national data centres as projects that they can go big on now to try and move things along.

Looking at today’s calendar, things are fairly quiet, though there’s another Bank of England speaker this afternoon which could turn things from bad to worse for the Pound. Later in the week we get UK unemployment, German economic sentiment, UK inflation, more BoE speakers, US manufacturing numbers and we cap the week off with UK retail sales – so a lot to sink our teeth into, but none of it likely to be that uplifting.

Be well.


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