It’s still quiet out there and the news flow is still pretty limited.

Boris is heading off to Berlin today to meet Angela Merkel and talk Brexit, defense and a range of other matters (but mostly Brexit). Angela Merkel was actually responsible for a pop higher in the Pound yesterday as she said that they would entertain practical discussions on Brexit.  This comes contrary to the rest of Europe who seem adamant that they won’t renegotiate the terms of Theresa May’s deal. Boris is off to Paris tomorrow to talk to president Macron and there might be an outside chance that he can get both leaders onside to at least talk about alternatives – if he does – and that’s a massive if -then that would at least get us back to the table and chip away at concerns that a no-deal is the only outcome in 72 days time.

Boris has ordered civil servants to start to disengage from European matters in 10 days time in order to focus on preparing for no deal. Dublin meanwhile has refused to engage with the UK on a no-deal plan, according to the Irish Times. whilst the UK wants to try and get ahead of the chaos, Ireland are sticking to the EU’s position that there won’t be any conversations of the sort until we’ve actually left.

Italy won’t be much use in Brexit negotiation, as they’ve got their won issues… yesterday Giuseppe Conte resigned as prime minister, which effectively breaks up the coalition and will lead towards elections. Matteo Salvini is the one that’s holding all the cards and he’s said he’ll keep the government going until next years’ budget is passed and there’s some parliamentary reform pushed through. Thereafter though he’s hoping his form in recent polling carries him through to a government that he is overwhelmingly in control of.

The German government are going to auction a 30 year bond today, which amazingly pays investors nothing! The zero coupon bond issue is for €2bn and will have no interest payments attached to it and will simply be redeemed in August 2050. Amazingly, this is actually a better deal for investors than buying bonds in the secondary market, where 30 year German debt is now trading in negative territory.

 

Over to the US’ problems: Trump has suggested that the Fed go for a 100 basis point rate cut to get the economy going! He’s pinning his re-election hopes on the Fed taking enough action to delay any downturn in the economy and pulling no punches in getting his point across.

Jeffrey Gundlach has told Reuters that the Fed has lost control of interest rates. He points to the Fed funds rate being higher than any US treasury yield as the point that the market is controlling rates and the Fed isn’t. He thinks Jerome Powell can’t put across a consistent monetary policy message and will struggle to get it back under control. Barclays are forecasting three more cuts from the Fed this year.

Trump is also weighing other options outside of the Fed, such as linking capital gains taxes to inflation. The proposal basically allows you to inflation adjust your gains and therefore pay less CGT on investments that you’ve held – another perfect strategy for middle-high income earners to reinvest profits into stocks for longer terms and prop up markets.

Elsewhere: Japan is likely to upgrade its assessment of North Korea’s nuclear weapons capabilities. They say that Pyongyang has already managed to miniaturise nuclear warheads. Reuters has the story.

This comes at a time where Japanese -South Korean diplomatic relations are ‘spiralling out of control’ according to Washington. They’re practically in a trade war, with Korea’s latest move to double down on radiation testing Japanese food imports. The US fears that this could lead to intelligence sharing breakdowns between the two, which has large implications for regional stability.

Today we’re looking for any tidbits from the Merkel-Johnson meeting that might pick up the value of the Pound – or send it crashing back down!

Have a great day