Good Morning,

The Times is reporting reaction from the Telegraphs’ article yesterday on the Treasury’s blueprint to repay the money they’re borrowing now. A Number of senior Tory MP’s have said that raising taxes and cutting spending would risk entrenching the downturn – and almost certainly lose them the seats that they gained from Labour in the last election – they say that the money should be treated like a wartime bond and repaid over decades – Back in 2015 the government decided it was about time they paid off the remnants of the debt from World War One, as well as debts ranging back as far as 1720, when they had to step in following the South Sea Bubble bursting.
These debts were financed with open ended bonds from the government that repaid an annual coupon and had no fixed maturity date, ultimately meaning the investors made many multiples on their money over that time – though the government ultimately saved, as a billion pounds borrowed in 1918 is worth roughly £56bn 100 years later thanks to inflation and therefore extremely cheap to pay off.

There would certainly be appetite in the market for ultra-long dated gilts; back in 2017 Austria managed to issue a ‘century bond’ which analysts thought would go down like a lead balloon, given the country was merely 60 years old in its current form and the Euro currency was less than two decades into existence – still, they sold them all easily and went back to the market with more, which were also readily snapped up. For Rishi Sunak to do similar, with the Bank of England behind him as a secondary buyer in the market, would mean he’d easily get them sold and at an incredibly low coupon.

Bank of England governor Andrew Bailey told ITV’s Robert Peston yesterday that the bank is likely to step up its bond buying programme and exceed the £200bn target that it had initially set itself. Him and his colleagues favour an open ended approach to purchases and think this is fine, as long as “the overall credibility of the framework remains in place” – translated to; as long as the market continues to believe that one day we’ll sell this debt back to the market and take the money we printed to buy it out of circulation, we’ll be fine.

Staying in the UK; Brexit will mean checks on goods crossing the Irish Sea, despite Boris insisting to the contrary. This is according to a letter from the UK government to the Northern Ireland Assembly which confirmed that there would be border posts at the sea ports of Belfast, Warrenpoint and Larne. This Guardian article gives the detal.

Airbus are set to shed 10,000 jobs, just shy of 10% of its workforce. The move would mirror Boeing, who announced the same steps two weeks ago. The company employs about that many people in the UK, so this is going to have an impact here, as well as in France. The news comes as little surprise when you look at how airlines are performing and with the cuts in the amount of trips being taken it’s likely the used market in aircraft will be the place to go for the foreseeable future if anyone is looking to buy a plane.

Italy has finally got its act together and approved a €55 billion stimulus package. The devil was in the detail and with 500 pages of detail to get signed off, it took the coalition government far longer to agree on than many hoped. The problem with delays is that all the while the funding isn’t getting out there, the problems are growing worse, which has led analysts to believe that they’ll have to agree another package of measures to bolster this one in the near future. Prior to this, Italy had agreed a €25bn funding injection, which when combined with the new amounts and coupled with a collapse in tax receipts could push their budget deficit north of 10% of GDP this year.

Over in the US: Fed chair Jerome Powell hit the markets with a sombre assessment of where we are and said there is going to be a need in the US for further stimulus. His comments led to a sell-off in equity markets, but gave a boost  to the dollar when he reconfirmed what his colleagues were saying the previous day, that negative rates aren’t on their to-do list.

In Wisconsin, Democratic Governor Tony Evers has had his extension to the stay at home order over turned by the state’s Supreme Court. The court has a conservative majority and in the ruling said they weren’t challenging his powers to declare emergencies, but that in the case of pandemics that go on for months, he cannot rely on “emergency powers indefinitely” – which seems strange, because surely when an emergency situation continues to be an emergency, you’d want to be able to act appropriately? Anyway, from today bars will be open and it will be business as usual in Wisconsin.

In international politics; Business Insider write that the US and China are on the brink of a Cold War that could be devastating for global trade. They say the use of the term isn’t entirely accurate but that we should face up to the fact that relations are on a downward slope and becoming more adversarial and this could become more globally divisive as ‘sides’ start to emerge and other countries may have to choose. It’s a long and reasonably interesting read to add to your to-do list.

A US regulator, the CFTC, has warned exchanges to be ready for a possible return to negative prices in oil. They don’t want to see last months chaotic scenes repeated and the June contract is set to expire next week. The June contract is currently trading around $26, which isn’t a million miles away from where the May contract was a week before its expiry. The CFTC has said “we are not predicting the market. We’re just suggesting planning”.

Today’s markets have followed Asia, which in turn followed the US, that is to say lower. Data is limited, but there’s plenty of sentiment to go around, so we could be in for a busy session.

Be well


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