07 May 2020: Job scheme saves 4 million jobs

Job scheme saves 4 million jobs

7th May: Highlights

  • Sterling falls as market considers BoE meeting
  • Catastrophic private jobs data bodes badly for NFP
  • Another day, another record fall

Pressure mounting on Sunak to confirm what happens next

With UK lockdown rules set to be reviewed this weekend and some changes likely to take effect from Monday, the spotlight is likely to switch to Chancellor Rishi Sunak.

The measures he put in place to protect businesses and jobs during the pandemic are due to end or at least be up for review at the end of next month.

There is concern, especially from SMEs, that they will be caught in an impossible position where they are able to reopen but the slowdown in activity means they are not operating at sufficient capacity to be able to pay their employees.

There are calls for the review of the scheme to be carried out as soon as next week to allow firms the time to plan how they will operate post-lockdown.

Although it will be the individual businesses responsibility to ensure their staff are safe, it is probable that the Government will put a scheme in place to help with the cost of modifications to business premises as well as the provision of PPE.

With up to six million workers being paid by the Government, it is estimated that close to four million jobs have been saved by the various schemes but it is only now that loans are being made by banks as the Government has decided to guarantee 100% of the principle of the facilities.

The cost of the scheme has been beyond the Treasury’s initial calculations, while the expectation that the recovery would be V-shaped has faded.

With the Q1 GDP data due next Tuesday, the effect of the lockdown on the economy will become a little clearer, although as with all G7 nations, the real effect won’t be seen until data for the current quarter is released, sometime in July.

The Bank of England MPC will meet this morning with analysts not expecting any new initiatives and Andrew Bailey, the new Governor likely to review what has been done so far at his press conference this afternoon.

The pound lost ground versus the dollar yesterday as risk appetite faded. It fell to a low of 1.2335, closing at 1.2344

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Private sector job losses second largest in history

The data released yesterday for job losses in the private sector was as bad, if not worse than market expectations.

With jobless claims having given a weekly warning about how bad the situation was getting, yesterday’s release of ADP (Automated Data Processing Inc) data on private sector job losses showed that more than twenty million jobs have been lost.

It is impossible to equate that with any historical data other than to say it is apocalyptic. Total job losses in April were more than double the total from the great depression in 1931.

In spite of this, the U.S. Labour Secretary Eugene Scalia sounded an upbeat note (if that were possible) about the future. He commented that he remains confident that the market will improve as early as late summer with the country leaning heavily on its incredible productive capacity by utilizing the ingenuity, creativity and energy of the private sector.

While those are rousing sentiments, the industrial and manufacturing heart of the U.S. has been ripped out and shipped to Beijing in the recent past so that opinion may no longer apply.

Initial jobless claims, which will be released this afternoon, are likely to remain just above the three million mark as the initial surge continues to fall but ongoing issues remain.

Several States, including Arizona, Florida and Colorado have announced a limited lifting of restrictions but the concern remains about how they will react to a second spike.

With several indicators of the parlous state of the global economy being released yesterday, risk appetite faded, and the dollar index managed to creep back above the 100 level. It touched 100.20, closing at 100.17.

As the market holds its collective breath ahead of tomorrow’s headline NFP data, the number of fatalities is beginning to fall which will lead to a further lifting of some restrictions put in place at a Federal level although the continued hit being taken by the service sector is beginning to have a longer term effect.

Pace of slump surpasses worst fears

The confidence that is being gained from TV pictures from several countries showing relatives and loved ones meeting up again after up to eight weeks in isolation is being tempered by the data which shows the decimation of the services sector.

This has been a continuing theme globally and the hospitality industry has not only come to a complete halt but the ability of the sector to bounce back any time soon is fading.

The private sector recorded its worst month for job losses in history as demand virtually evaporated. The ferocity of the slump has been far worse than analysts at the research firm IHS Markit, which produces the survey, had expected.

While last month and this month are likely to see the nadir in activity, it is now the pace at which a recovery can grow that will be exercising the minds of economists and traders alike.

The fallout from the verdict of a German Court to put restrictions on the Bundesbank’s ability to participate in ongoing QE activities from the ECB continues.

Government bond prices, particularly Italy, continue to fall as the market digests the ramifications of a ruling that was five years in the making, since a group of German intellectuals challenged the ECB’s activities in the German Courts.

France and Germany, the two largest economies in the Eurozone will produce industrial production and France will report the fall in employment this morning. Individual nations data is often more illustrative of the situation on the ground as the numbers are often skewed by the smaller economies.

Yesterday, the euro reacted to the global slowdown in activity. It reached a low of 1.0782, cloning at 1.0794.

Have a great day!
About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”