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FTSE higher as UK hits grim milestone

The FTSE is trading higher even as the UK hit the unenviable milestone of being the country with the highest number of coronavirus deaths in Europe. The disconnect between what is happening in the hospitals around the country and the optimism in the markets has mainly to do with investors looking ahead to businesses and shops shortly coming back on line. The lockdown is beginning to wear thin with more and more calls for a swift reopening and the Prime Minister is expected to reveal a reopening plan as the country goes into a three-day weekend.   

The anticipation could explain why investors are holding back slightly this morning with volumes on some of the most popular stocks about 20% lower than usual. ITV and Smith & Nephew are trading higher following trading updates, both showing declines in revenue of close to 7%. In contrast, grocery delivery group Ocado which at the beginning of the lockdown ended up booked three to four weeks ahead recorded a 40% y-o-y increase in retail revenues in the second quarter.

There will be trouble ahead …

Trouble is brewing on a tectonic scale after Germany’s High Court ruled that the ECB’s massive quantitative easing exceeded the bank’s powers. Today ECB’s Christine Lagarde showed her defiance by pledging to continue to do everything to revive inflation and arguing that Europe's top court previously said quantitative easing was legal. Some form of financial support has become even more pertinent after data showed that Eurozone’s Composite Purchasing Managers’ Index plummeted to 13.6, far below the 50 mark that indicates expansion.

If Germany and the ECB don’t find middle ground over the next three months the disagreement could end up with Germany pulling out of the ECB and completely undermining the existence of  Europe’s central bank. The euro has already lost close to 95 pips after the ruling yesterday and continued to decline by another 40 pips this morning.

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