Good Morning,

20.4% – that’s how much the UK economy shrank in the month of April, according to estimate data out this morning. The number was slightly larger than analysts had expected, but it was always going to be guesswork and what’s a few percent at levels like these? That’s certainly the market’s take on things, as it hasn’t stopped the pound clawing back some of its losses from yesterday and the futures market was already showing stocks opening lower and that hasn’t got much worse.

Stock markets saw plenty of action yesterday, but that was one-way action as they had their worst day since March. The falls ranged from 4% in the UK and Europe, to more than 6% in the US as investor sentiment turned around very sharply and people started to think that maybe things aren’t quite rosy enough out there to justify markets at all-time highs! One of the major catalysts for the poor sentiment in the US sessions is the fear that Houston, America’s fourth largest city, might be looking at re-imposing stay at home orders as infection rates are on the up.

The fallout from stocks had some knock-on effects elsewhere and we saw the US Dollar gaining some ground off the back of the moves – though it was by no means linear and investors weren’t quite as willing as they might once have been to seek shelter in the currency.  Oil also had a bit of a day of it, with falls of around 8%, though it doesn’t look like there’s going to be a storage capacity issue at any point soon, so with the production cuts coming out of Russia and Saudi, it does remain pretty well supported.

In Europe, banks are set to breathe a huge sigh of relief as it looks like the EU is going to put in place legislation that would stop banks from having to keep such large capital buffers in place against their sovereign bond portfolios. The volatility in sovereign bond markets means that a lot of capital needs to be allocated against them and that restricts their ability to lend, as it limits the amount of spare capital to put against their corporate debt books, which in turn costs them money because they can’t lend as freely as they’d like. Additionally, banks are seeing a load of the post global financial crisis restrictions temporarily rolled back to allow them to be more flexible with their own trading limits, which in turn helps the markets to function more smoothly – these rollbacks are only temporary, but are very welcome.

To Brexit: we’re set to hear Michael Gove formally rule out an extension later today. This comes as both sides of the table agreed yesterday to an accelerated negotiation timetable and the UK looks like it’s making life a little easier at the borders, with reports that they’re going to rollback on their original plans for full border checks come the 1st January. They’re concerned of the impacts these might have on slowing down supply chains and they want to give business the best possible chances of a return to form following Covid by pursuing a “pragmatic and flexible” approach – if only they could use that approach elsewhere.

In the US, Trump has been told to stay out of Seattle’s business, as he’s chimed in on the troubles their police force have faced in being turfed out of a particular section of the city, which is now a ‘police free autonomous zone’. Trump has said that if they can’t get it back form the Domestic terrorists” and “radical left democrats”, he’ll do it for them, but this ‘offer’ has been swiftly rebuked by the city’s mayor who said “a man who is totally incapable of governing should stay out of Washington’s state business”. Depending on how you look at this, it’s either a PR disaster for Trump, or another unifying moment for his voter base. The problem with the latter is that this base might not be big enough to win his second term and polls in key swing states are consistently showing a Biden lead.

Elsewhere: Saudi Arabia are considering cancelling Hajj altogether this year. Some countries have already banned citizens from making the pilgrimage to Mecca and Medina and Saudi are set to make a decision in the next week as to whether they make it off-limits to everyone. The cost of this is clearly not just economic, as it impacts the lives of the millions of people that make the journey, however Saudi would be set to take about a $12bn economic hit if it doesn’t go ahead.

In technology, Zoom has admitted that it acquiesced to a demand  from China to block activists from holding webinars on the platform to celebrate the Tiananmen Square anniversary. The decision is controversial as the meetings were being held outside of mainland China where there isn’t a law making this sort of gathering illegal. Zoom has been the a preserver of sanity throughout the lockdown, with their user base growing from 10 million to more than 300 million users over the last few months. It’s unlikely people will vote with their feet on this one, but still not exactly the messaging they will be looking for.

Last one from us for the week: We hadn’t heard of the auto manufacturer Nikola Motors, but after it recently completed a reverse takeover of a listed business, its shares rallied to such a point this week that they were more valuable than Ford, despite not having sold a single vehicle! In fact, they’re not going to sell a vehicle until at least 2021, but apparently have an order book for $10bn (which may or may not come to fruition). The company is aiming to build electric and hydrogen powered commercial vehicles, which is an area that Ford and Tesla are also getting in on – and not from a standing start – so good luck to them.

Be well.

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