Good Morning,

Though a European trade deal alludes us for the time being, we might get to sign on the dotted line today with Japan… The meeting between our UK trade secretary and Japan’s foreign minister today will likely see a carbon copy of the EU-Japan trade deal signed off, which though it does more for Japan that it does for the UK, at least shows others that we’re ready to get down to business (albeit compromise ourselves slightly in the process). Though Japan’s economy is the third largest single economy, the trade deal is set to boost the UK economy by less than 0.1%. The sense of urgency on the talks comes from concerns in Japan that the UK and EU won’t get a trade deal done before the clock strikes midnight (CET) and Japanese companies in the UK would therefore be left importing goods into the UK from Europe under a new tariff regime. This way they’d be able to look to Japan as an alternative supply chain and even with the additional freight, it’s likely that they’d be cheaper than stumping up WTO charges. The FT has more.

Another big economic event for the UK today will be the bank of England’s release of their post-meeting statement and quarterly inflation report, due at 10am. The bank have already voted unanimously to keep interest rates where they are, as was expected. The big question for everyone is whether they will open the door to negative interest rates – either explicitly, or by forecasting inflation expectations to dramatically underperform in the short-medium term, to which a solution would possibly be to penalise balances left on account – at the moment the Pound is performing like there’s no chance of this happening, but this could just be positioning ahead of the fact.

In the US, the saga continues. We’re still no closer to a deal and Republicans are now saying that if they don’t get one done by Friday it’s unlikely that they ever will. Trump is still doing the due diligence on whether executive orders are the solution to this and he’d be going for a vote winning combo of payroll tax cuts, more direct to household stimulus cheques and the continuation of unemployment benefits. The stock market there is actually slightly higher and the dollar slightly weaker, which is probably telling the story that the market is more concerned about being left behind if something gets done than it is of this all going wrong.

The magnitude of what happened in Beirut continues to unfold: At least 150 dead, with scores more still missing. At least 300,000 homeless and the hospitals that survived the blast past breaking point. Reports are now surfacing that officials were warned around six months ago that the fertilizer that exploded was capable of destroying the entire city and should be moved. There are port officials under house-arrest, but this will go much higher and the government, fragile as they are, will struggle to survive this. The questions that will need to be answered in the coming days are those around how the rebuilding effort is funded and which members of the international community are willing to step in.

Looking at today: The Bank of England at 10am is a key Sterling event. Later in the day we’ll get another US employment number, which comes off the back of yesterday’s ADP report, which was a shocker – with private firms adding just 167,000 jobs in July, against a market forecast of 1.2 million. The shocking slowdown in re-hiring is a major concern that things aren’t going to plan (is there a plan in the US?).  One beacon of light could be UK construction PMI numbers, which are forecast to be well into the expansion category as building picks up where it left off, and then some.

Be Well.

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