Good morning,

Productivity is expected to be lower in the UK this morning, following the nerve shredding 120 minute match with Denmark last night.  No doubt beer sales will have hit a post pandemic peak in the last 24 hours though!  The match was played in front of 65,000 fans, the largest live audience of the tournament and the first football match to have a relatively packed stadium in the UK since Liverpool V. Atletico Madrid on the 11th March 2020, just five days before the first lockdown! England now play Italy in the finals in front of an even larger audience this Sunday at 8pm (as if you didn’t already know!)

Whilst the match was on, there were some traders paying attention to the minutes of the last Federal Reserve meeting that were published last night.  There are two camps emerging at the top table of US monetary policy; those that think tapering should get underway sooner and those that are happy to wait and make sure the economy is strong enough, despite the risk that brings of overheating.  The data is certainly supportive of the move,  but as we’ve seen elsewhere, the initial spike in activity and output does taper off pretty quickly and there is some concern that the US isn’t quite on the right vaccination trajectory to be confident that Covid won’t make a damaging resurgence.

Cases of the delta variant in the US are rapidly rising, with it now making up more than half of all new cases – last month it accounted for just 10%.  Deaths have also hit a six week high and the vaccination effort that started so well has slowed down to the point that Joe Biden missed his 4th July target of having 70% of American adults jabbed with at least one dose of vaccine. The number achieved was 67% but with an adult population of 210 million, that’s 6.3 million missed opportunities. The variation between vaccination percentages varies significantly on a state by state basis, with some Southern states having rates as low as 50%, whilst in Massachusetts it’s north of 80%.

The rise in cases doesn’t seem to be bothering the US stock markets though, as they continue to break new ground. The S&P500 reached an all-time high of 4,358 at last night’s close, exceeding Goldman Sachs’ original target for the index for the end of 2021.  Tech stocks are continuing to be flavour of the month, with gains for Apple and Amazon of around 15% in the past four weeks, with Apple’s market cap north of $2.4trillion dollars – for context the combined market cap of all the companies in the FTSE100 is around $2.7trillion – Forecasts aren’t necessarily being revised dramatically higher though and there is some concern that we might be hitting a summer peak and a turnaround could come into play as trading volumes start to dry up heading into the holiday season.

In Europe: Germany could end up producing 400,000 less cars than they’d like to, because of the chip shortage, which is a 10% reduction overall.  The automotive industry is a big part of Germany’s economy and is having a drag effect on overall industrial output, which is actually contracting month on month instead of growing as you would expect post-pandemic. German cars are being hit disproportionately compared to other European manufacturers, as the premium brands and electric vehicles they make require more semi-conductors than your average family hatchback.  BMW have so far been able to swerve the supply chain issues to the point that they’ve recorded a 40% increase in sales in the first half of 2021 Vs 2020, which is still 7% higher than 2019. The FT has a bit more.

Looking to today:  The ECB will be releasing their latest meeting minutes, along with a much awaited strategy review.  The document is expected to lay out a slightly adjusted approach to inflation, with a 2% target likely to remain but with an all new allowance for an overshoot, so as to stop the hard mandate they have in place at the moment forcing their hand at raising rates if price rises move north of the target.  This might be a market mover, but given the slight dulling of sensitivity to central banks that we’ve seen in the last week or two, we’re not convinced.

Its Coming Home


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