Europe

Following a rally in Asia, European markets are getting a lift and in turn boosting the S&P futures as today begins talks among EU leaders about their proposed 750b euro spending plan where 500b would be in grants and 250b in loans to EU countries. To finance this, bonds would be issued and then guaranteed by all its members. The vote for this needs to be unanimous but it is this proposed debt mutualization that has some countries against it. In other words, the Austrians don’t want to be responsible for Italy’s profligate spending. Surprisingly, the Germans are on board. I’ll say this, there will be one thing in getting this passed but a whole another thing in spending this money efficiently. As there has been chatter about these talks for a while, the euro is unchanged as are bonds while stocks are rallying. I’m still amazed that with everything thrown at the euro such as NIRP for 6 years, massive QE, sclerotic growth and huge debt levels that the euro continues to remain in a $1.05-1.15 trading range vs the US dollar for now years (outside of a spurt to $1.25 in early 2018). That says a lot, and not in a good way, about how investors feel about the US dollar with our own exploding debts and deficits. Got gold?

EURO/$ cross

Retail sales ex auto fuel in the UK in May did rise 10.2% m/o/m, exceeding the estimate of up 4.1% and that follows the 15% drop in April at the peak of the shutdown. There was a 42% jump in household goods and online sales now make up the biggest percentage of the spending pie. The UK government has been successful in keeping workers on company payrolls via its job retention program but at the expense of its exploding debt pile which now exceeds 100% of GDP as of May. This jobs program expires in October. Gilt yields are higher in response to the sales upside but the pound is back below $1.24 after being above $1.25 prior to yesterday’s BoE comments. I’m still a bull on the pound notwithstanding the BoE’s goal to monetize a lot of that government debt.