Good morning,

In positive news,  poorer countries will begin to receive vaccines from the UK over the next few weeks.  Prior to the G7 summit,  Boris Johnson announced that 100m surplus doses will be delivered over the next year,  which will be in conjuncture with 500 million doses of the Pfizer vaccine from the US,  which will be delivered to 92 low and middle-income countries as well as the African Union.  The group of leaders at the summit are anticipated to commit one billion vaccines towards a collective effort to end the pandemic.
The ‘special relationship’ is back.  It often happens in sequence with presidential replacements and on this occasion,  President Biden is the man to serenade us.  Overlooking the invidious comments regarding sausages in Northern Ireland,  Joe Biden and Boris Johnson managed to put those tensions aside,  to show a united front,  with Biden decreeing ‘we affirmed the special relationship’, much to everyone’s palpable relief.  The rest of the G7 leaders will join Johnson and Biden today,  and the agenda is largely expected to revolve around coronavirus vaccinations and climate change,  along with global tax thresholds.

During another incredibly counterproductive stand off between the United Kingdom and the EU,  President Biden had accused Prime Minister Boris Johnson, of “inflaming tensions” in Northern Ireland over the developing sausage-gate.  For those less au fait with the unfolding palaver,  the EU only allows frozen meat to be imported into its single market,  which under the Northern Ireland Protocol,  includes rules imposed on items being imported across the Irish Sea.  Currently,  a grace period is set to expire which allowed meats to enter Northern Ireland,  which has prompted the Prime Minister to intimate that he would act unilaterally to ignore legally required checks on chilled meats such as sausages and mince,  moving between Great Britain and Northern Ireland.  The European Union are prepared to let this escalate to a full on trade war,  however the White House have begun a climb down over their comments,  with the aim of finding a compromise,  using a rational approach.

US inflation has reached the highest level since 2008,  in promising signs of recovery from Covid-19.  Consumer price index rose at an annual rate of 5% in May,  up from 4.2% in April,  a steady rise since it was 1.4% in January.  There has been a very visceral fear that a pent up supply and demand chain bottleneck would create the type of inflationary pressures which could force the Federal Reserve to slow their stimulus program. However,  US stocks rallied on news,  with the S&P 500 touching new highs of 4,249.74,  with traders anticipating the inflationary surge to be transitory.  Ron Temple, the head of US equities at Lazard Asset Management highlighted that,  “before hitting the panic button,  investors should recognise that used cars,  car insurance,  and air fares drove nearly half of the core CPI increase.”  This largely intimates that the price increases are derived from suppressed pricing from a year ago.  A ‘covid-to-date’ scale would help put a lot of the data we are experiencing into perspective.

The inflation debate continues to flare up.  Yesterday the European Central Bank announced they would continue their bond buying at the current rate,  while leaving interest rates on hold.  Following the announcement,  ECB President Christine Lagarde said  “uncertainties remain,  the near-term economic outlook continues to depend on the course of the pandemic,  and how the economy responds to reopening.” Lets wait and see,  in short.  The good news is that the ECB anticipates inflation to spike at 1.9% in 2021 but then stay well below the banks 2% target,  to 1.4% in 2023.  Growth outlook has also been revised,  with the eurozone expected to grow 4.6% in 2021 compared to 4%.

The UK economy gathered more momentum in April,  thanks to the proficient vaccine rollout,  with GDP increasing 2.3% from March,  despite unexpected declines in manufacturing and construction.  The sustained growth should assuage fears of the UK recovery,  and turn the focus to the Bank of England who will be waiting for the optimum time to wind down the aggressive stimulus package.  BOE Chief economist Andy Haldane has already begun to guide traders regarding inflation,  indicating that it will remain above the 2% target for ‘longer than they assume.’  Exports of iron and steel boosted the data,  delivering a 2% gain in exports to the EU.

That should summit up!

This Morning Report was brought to you by Alex Ayoub


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