Good Morning,

The Bank of England’s monetary policy announcement was the big event of yesterday and though it was largely in line with expectations, there was on curveball: The bank kept rates on hold at 0.1% and increased their asset purchase facility by £100bn, which was as expected. Holding rates was expected and there was no talk of negative interest rates from the bank, which has been a subject of debate of late – though possibly more in the press than within the monetary policy committee. The asset purchase increase of £100bn, at their current run rate, would only just take them to the end of summer but they have said that they will dial down their pace of purchases, as the stress in financial markets has reduced, though they can turn it up again should they need to. In a normal world the news would have been good for the Pond – less money printing, no negative rates – but investors took it as a bit of a sign of procrastination in doing everything necessary to boost the economy and are also thinking along the lines that maybe Andrew Bailey is keeping some powder dry for any possible Brexit disruptions.

Staying in the UK: Boris met Emmanuel Macron yesterday to mark the anniversary of Charles de Gaulle’s “flame of French resistance broadcast” that he made from London eighty years ago. After some fairly awkward socially distant welcomes, the leaders got down to business, where both agreed that negotiations should be stepped up and that both want to see a deal, though Boris reasserted that this shouldn’t drag into autumn.

One item Downing Street says they didn’t speak about is ‘air bridges’, but the Telegraph is running a story that the UK will announce at the end of this month that we’ve established these with a number of countries with low Covid stats and that from the 4th July we’ll be able to travel to them without having to quarantine, as long as we abide by that countries social distancing measures. Those countries are most likely to be the European summer holiday hotspots and those countries are going to be keen to get some kind of tourist income ASAP, as will we if their citizens are willing to head this way.

The EU are holding a summit today to continue to negotiate their €750bn kick-starter fund. The virus recovery fund is by no means a done deal, as the opposition to mutualised debt is still strong from Northern European countries. However Angela Merkel signalled her assent to such a plan last month and conveniently takes the 6 month rotating EU presidency from the 1st July, so can make it front and centre of any agenda thereafter! We’re not expecting anything concrete to come out of today’s meeting, but hopefully we get signals that it is still on course. Europe were heavily criticised at the start of the crisis for not doing enough, yet if they pull this off they’ll have leapfrogged everyone to become the most progressive in finding/funding solutions to the situation.

Across the Pond: The Donald has said “…the US certainly does maintain a policy option, under various conditions, of a complete decoupling from China”, despite his top trade envoy saying that this wouldn’t be a reasonable policy option today. The timing of the news is inconvenient, as the book by John Bolton which the White House is trying to prevent being released talks about Trump asking for China’s help with his re-election. Now such comments from Trump are seen as knee-jerk, but it wouldn’t be the first time he’s made a rash decision to try and improve his situation – which is why there’s a little bit of concern in the market. The book is due for release on Tuesday but the White House will fight this all the way. Some of the juicy bits have already made the press – Here’s the BBC’s summary of them

Trump’s also been dealt a blow by the US supreme court, who have ruled against his attempts to overturn Obama’s “Dreamers” law, which allows children who entered the US without documentation to stay. This puts the fears of being deported for some 650,000 young people at bay for the time being, though if there is a Trump second term he’d probably have another go at getting it done.
Staying with immigration, Trump is apparently looking at an executive order to expand visa issuance restrictions to include high skilled workers too. There’s currently a suspension in place on a number of visas being issued, but that expires on Monday. It’s likely the suspension will be rolled over and broadened in scope as POTUS wants to encourage the hiring of American workers. This has been pushed back on by businesses that say not being able to fill the talent gaps that they have quickly with skilled migrant workers will further damage the US economy.

Looking to today: We’ve already seen UK retail sales numbers for May, which were up 12% on April. The rise was helped by a lot of us getting back to DIY stores and garden centres, but the news isn’t being greeted warmly as it’s the service sector in the UK that makes up the lions share of consumer spending and that’s an area that remains closed.
The big event for stock markets today is a ‘quadruple witching’. This is when we’ll get expiries of index futures, index options, single stock futures and single stock options and that means that there will be a lot of people with a lot of trading to do ahead of the expiries and that could lead to a volatile run up to it. Luckily for most, the vast bulk of options in the market are within 10% of where the market is currently trading so losses on the day shouldn’t be too dramatic, relative to what we’ve seen in the last few months. However, once this event passes we might start to see investors take a more open approach to trading their views on the market and this narrow range of share prices that we’ve seen over the last few weeks might start to widen – put differently: ‘Now I’ve got no vested interest in the market being this high, maybe I’ll bet that it can go lower’.

Be well

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