Supermarket shelves empty again
14th September: Highlights
- Delivery chaos and delivery shortages hit UK recovery.
- Congress Democrats want business tax rises
- How will Merkel be remembered?
Government relying on a year late Brexit boost
Eventually, consumers came to realize that despite lockdowns, they would not be faced with a shortage of washing-up liquid, toilet roll and baked beans, the panic subsided.
Now, the fear has returned but, this time, there is more credence attached to the crisis.
The shortages that were perceived in the early days of the lockdown didn’t materialize because the public didn’t consider that drivers and shop staff would be considered essential workers and supplies remained plentiful.
Now, as many people consider the Pandemic to be coming to an end, conditions have worsened but this time shortages are genuine, and consumers haven’t even had a chance to stock up with essentials.
The UK is facing a crisis that will affect the economy almost as much as the lockdowns and this time, Rishi Sunak will be unable to sprinkle fairy dust and make it all better.
The country is facing a chronic shortage of drivers due, in no small measure, to the departure of thousands back to their home countries following Brexit.
Now, with the growth of infections growing as fast as at any time during the Pandemic, the Government’s hopes of harnessing a post-Brexit bonanza have been blown completely off course.
There is a degree of optimism that the claimant count will fall significantly when it is released later this morning, with the employment rate also falling. The risk for this data is marginally to the upside, with a more significant rise in employment expected next month.
Yesterday the market continued to be driven by the machinations of the dollar. However, with major data releases in the UK both today and tomorrow, Sterling will be at centre stage.
The pound mostly trod water yesterday, closing just three pips lower on the day at 1.3833.
A cut in support this year is becoming less likely
Since Jerome Powell’s speech at Jackson Hole and the August Employment Report, the entire picture, not just for the U.S. but for the entire global economy, has changed.
Analysts will be waiting with greater interest than they have shown for many months for the comments following the FOMC meeting that will take place on September 21/22.
Jerome Powell, already under pressure over his continued presence as Fed Chairman, will face a tough time to convince the market that he is in control of the Fed’s response to the Pandemic and that the level of growth won’t plummet following Q2’s encouraging result.
He may choose to inject a sense of realism whereby he acknowledges that the odds on a partial withdrawal of support will take place this year have fallen,
That will go against the view of several of his colleagues from Regional Fed’s, but he will most likely receive support from permanent members such as Lael Brainard and Richard Clarida.
While Powell has tried to be as realistic as possible without shaking markets, both Brainard and Clarida have remained fairly dovish, or at least as dovish as an FOMC member can be.
Estimates for inflation data, that will be released later today, have also been revised lower. From the headline reaching 4.3% in July, analysts expect a slightly lower read of 4.2% for August.
The dollar recovered within its recent range yesterday, but any data which means the taper will be delayed will see a correction possibly to recent lows.
Yesterday, the index climbed to a high of 92.88, but fell back to close marginally higher at 92.68.
Merkel will leave with regrets
No matter the end result, Germany will remain the dominant political and financial power in the Union.
However, the question is growing whether Germany actually wants to retain that title, given that it has been outmanoeuvred by the ECB over inflation.
At the time of the Financial Crisis, more than a decade ago, Germany flexed its muscles by threatening to allow those nations who were unable to either comply with the budgetary conditions of membership or be willing to take drastic actions to put their house in order to leave.
The Action taken at the time by Greece, Cyprus, Spain, Italy, Portugal, and Ireland led to those nations becoming more reliant on the Eurozone and therefore unable to voice their view, especially as the Pandemic threatened.
As the Pandemic has levelled the playing field, the less rich nations have taken the wheel, and begun to steer the Union towards a fairer and more democratic situation.
The UK being sufficiently bold to depart the Union, despite never believing in the single currency or monetary policy, has emboldened several nations who know that just the mention of another high-profile departure would mean the end.
Germany may become more ambivalent towards the entire experiment, depending on who wins the election, but no matter, Angela Merkel will almost certainly leave with a few regrets that given the power her nation wields and the length of her term in office that she was ever sufficiently comfortable to bring about a more federal Union.
The weakness of the French economy and the incredibly poor showing from her friend and colleague, Ursula von der Leyen, ruined that.
Now she will leave the world stage and leave Germany in the hands of a new Chancellor who will lack the gravitas to stand up to the hegemony of Russia and its ambitions for Western Europe.
The euro appears to have lost a large degree of its credibility in recent terms. That is probably down to the massively dovish nature of the ECB’s policy over the recent past and the market’s expectations for the future.
The Euro fell to a low of 1.1770 yesterday but rallied to close at 1.1803.
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.”