Good morning,

It wasn’t the news we wanted,  but the news we knew was coming.  Boris has extended lockdown in the UK for four weeks because of the delta variant but is confident that we won’t be going back into lockdown,  despite acknowledgement that cases and deaths will continue to increase.  The view of the government is that this buys us enough time to get everyone over 40 double-jabbed and everyone over 18 jabbed once and thereafter there’s little more that can be done.  The data on protection from the various vaccines is quite amazing,  with the AstraZeneca jab offering 92% protection against hospitalisation after two doses and even one dose gives 33% protection against any symptoms from the Delta variant.  The delay to full re-opening isn’t going to mean a full pause to proceedings,  with sporting events still going ahead with varying crowd capacities.  Wimbledon starts on the 28th June with 50 percent of the usual crowd allowed in,  whilst the finals will be played in front of a full audience at centre-court.

The market reaction was muted,  but that’s A,  because it was widely expected and B,  the market barely moved all day anyway as investors await some tier one data and the Federal Reserve later this week.  The trading ranges are more akin to those you would expect on a Friday afternoon in early August,  but patience is a virtue and when we do start to move,  we expect it to be fairly substantial in nature.  The Federal Reserve meeting takes place today and tomorrow and without there having been a May meeting,  the decision makers have had two months’ worth of inflation data and economic re-opening progress to deliberate on and they must be thinking that the amount of monetary stimulus they continue to pump into the system is a little excessive.  The risk they fear most is a ‘taper tantrum’,  which is the market throwing the toys out of the pram the moment the Fed even start to talk about rationing the money being printed. Our view is the stimulus that Biden might get across the line in the coming weeks would be the best opportunity for the Fed to start slowly winding things down whilst the government starts dialling things up.  If they can get their head around this switch of life-support then the fallout could be limited and the Fed might have half a chance at starting the long process of normalising.  Which could make for an interesting second half of the year.

JP Morgan’s CEO Jamie Dimon told reporters yesterday that his bank is stockpiling cash awaiting higher interest rates and has about $500bn on the side-lines waiting for investment opportunities that are driven by higher rates.  Mr Dimon’s view is that inflation is here to stay and that the Fed will eventually have their hand forced.  There’s an interesting article in the Daily Mail on this,  along with an opposing view from David Rosenberg from CNBC.

Joe Biden’s European road trip continues to go down well with his fan club.  Yesterday he was speaking with Nato members and reassuring them of America’s place in the organisation,  only a couple of years after Trump had threatened to leave the alliance.  Nato Secretary General Jens Stoltenberg warned of the “systemic challenge” being posed by China by its rapid increase in military capabilities and its cooperation with Russia,  but has emphasised that he doesn’t want a cold war with the country.  Biden meets Putin today on the last leg of his trip and if he manages to thaw this relationship,  then he’ll have kept a clean sheet for the entire European tour round – might not be so easy though,  as he did call Putin “a killer” earlier this year.  The BBC has a little more,  and some observations about what his popularity abroad might mean for him at home.

Today we’ve seen UK unemployment fall to 4.7% in the three months to April,  the fourth consecutive month of improvement.  Payrolls in May also increased by almost 200,000 as businesses rushed to get staff hired to deal with the wave of returning hospitality.  2 million workers remain furloughed and despite the four week extension to current restrictions,  Rishi Sunak has refused to extend the scheme,  which starts to wind down at the beginning of July – and though it doesn’t fully expire until the end of September,  the reductions will place extra strain on businesses that are already out of cash and were banking on re-opening next Monday to get some money through the tills.

For the rest of the day we get to look forward to Andrew Bailey speaking on the future of financial services – let’s hope he’s got an optimistic take,  given the damage inflicted over the last few months.  We also get US retail sales, producer price index, manufacturing and industrial production.  All of this has the possibility of making no waves in the market given the current lethargy,  but we live in hope.

Have a great day

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