Good morning,

Boris Johnson’s three tier system announcement yesterday was actually not bad for risk sentiment, with the Pound performing well immediately after the speech. This was probably down to investors breathing a sigh of relief that there wouldn’t be an immediate change to life as we know it for many and that even under a ‘high’ scenario, the pubs remain open. The measures have understandably drawn criticism from all sides, withsome  people saying it goes too far and the Chief Medical Officer saying that it probably doesn’t go far enough, with the measures in the ‘very high’ category unlikely to prove effective unless they’re perfectly observed and actually urged the PM to go for a national lockdown two weeks ago. MP’s will vote today on whether to approve the measures on a national basis.

The Rock: Rishi Sunak is going to have to raise £40bn a year in additional tax revenues if he’s to avoid the debt burden spiralling higher, according to the IFS. They’re forecasting government borrowing to hit £350bn this year, which is £295bn higher than it was forecast to have been back at the beginning of March. The long term reality is that our debt to GDP ratio isn’t going to be heading lower at any time soon because we’re not going to get back to pre-pandemic levels of GDP for another few years, as they say that this rebound in activity should not be mistaken for an economic recovery and that we’re likely to find ourselves in a negative feedback loop, by where consumers spend less, which leads companies to shed jobs which leads to consumers spending less, etc. The FT has the story.

The Hard Place: Data this morning shows that unemployment has hit its highest level in three years, now at 4.5%, in the three months to August – or 1.5 million people. What it’s really showing is that the furlough scheme is still very much papering over the reality and research shows that up to 1.8 million viable jobs are at risk when the scheme ends later this month. Mr Sunak’s follow up scheme to furlough isn’t looking nearly as good as he’d made it out to be, with companies crunching the numbers and working out that it’s going to cost them about 165% of the wages of one full time worker if they were to use the scheme to spread that work across a few people. Many companies have already burnt through their cash reserves over the last six months, leaving them without the funds to be able to switch onto the scheme and leaving employers with no choice but to let staff go.

The Bank of England have been asking banks to tell them how prepared they are for negative interest rates. The information requests come as Andrew Bailey says the central bank still isn’t ready to go there, but does want to make sure it’s an option, as economically “we think the risks unfortunately are all on the downside”.

Some good news on the Brexit front would be welcome, though is still alluding us for the time being. A vote in parliament yesterday rejecting House of Lords amendments to food standards on imported products has probably made it a little easier to get a deal with the US though. The message from the government is that we don’t need these amendments in the Agriculture Bill, as the intent would always be to hold up food standards and have the UK as the benchmark over sustainable, ethical produce. However farmers fear being undercut by imports that don’t adhere to the same standards and therefore having to lower their own standards just to compete. Farmer’s Weekly has some details over the concerns.

We’ve seen a bit of risk-off sentiment build in the overnight session, as Johnson & Johnson have said they’ve halted their vaccine trials due to an ‘unexplained illness’ in a participant. Additionally there has been a confirmed instance of someone being re-infected by the virus and having a more severe bout of it the second time around.  There have been other confirmed instances where people have got the virus twice, but only two recorded where the patient was more adversely affected the second time round.

Another risk-off driver is news that the White House has asked Congress to approve arms sales to Taiwan. The sale of advanced military hardware to the country is only going to further harden relations between the US and China. US News has the story.

And, because bad news travels in threes, another story that’s causing markets concern is that of China apparently instructing power stations, steel mills and ports not to buy Australian coal. The instruction hasn’t been made in writing and Australia are trying to clarify exactly what the situation is. Australia exports around $15bn of coal a year to China and at this point would like to know whether it’s an outright ban (and if so, why) or whether it’s just a case of China adjusting its quotas.

Still, there is some good news for investors, particularly in the tech space: Amazon Prime Day starts today, which is always a revenue booster for them, perhaps this year more than ever given the stellar customer acquisition and sales increase numbers they’ve already witnessed over the pandemic. Apple are set to announce some new products today, most notably the iPhone 12, which analysts will be hoping starts to bridge the technology gap between Apple and some of its Android based rivals.

Have a great day


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