Eat out to help out a major success
18th August: Highlights
- Brexit trade risk to drive Sterling as talks resume
- Trump promoting return of industry to U.S.
- Asymmetric effect of Pandemic finally pushes unified approach
Will Sunak opt to extend his flagship scheme?
However, it is the headline-grabbing eat out to help out scheme which has grabbed the imagination of consumers and the attention of the press.
It is being hailed as an instant success, not just by the hospitality sector, but by the entire high street. Increased footfall in and around bricks and mortar retailers has given them an advantage over online outlets and pressure is sure to build on the Chancellor to extend the scheme. Although with schools returning next month the effect may wane a little.
Brexit talks are about to resume and although the effect of a no deal departure by the UK has been downgraded somewhat by the Pandemic the threat to the recovery is real. The UK Government representatives at the talks have been buoyed recently by comments made from the mainland about the importance of a future relationship and the fact that Britain and the EU should remain partners.
Any negativity that leaks from the talks could adversely affect the pound with it looking vulnerable to a fall below 1.30 versus the dollar as activity picks up again following the summer lull.
While evidence from the high street and the words of BoE officials supports the pound, a significant part of the support it has seen recently is due to the weakness of the dollar. This is evidenced by the fact that Sterling remains close to the 1.10 level versus the euro which has also gained versus the dollar.
Yesterday, the pound rallied to a high of 1.3137 versus the greenback and closed just two pips from the high. While this week’s PMI data is expected to be supporting were it to be weaker than predicted that would provide a major test of the pound’s resilience.
Trump finally realizing that the buck stops here?
Having championed reductions to the expense base of those manufacturing businesses that have exported their capability overseas as a businessman, as President, Trump realizes that at grassroots level, the degree of profitability that has driven stock markets to record highs has chipped away at employment and faith in the Administration.
While this is not a recent development it is something that has needed to be addressed, and Trump’s advisors have come up with a scheme of tax credits for firms that return their capability to the country
This is a vote winner for the President and should gain support from both sides of the House.
In another reference to the rise to China as the cause of significant pain to the country, Trump vowed to bring factories back to the U.S. from there rather than making the policy more general. Since he continues to refer to Covid-19 as Chinese Flu, the next round of trade talks between the two nations is looking less and less likely to find the breakthrough needed to complete phase two.
It may be that blaming China for all that ails his country is a strategic play, but it may not be enough to win the election and could significantly muddy the waters for his successor should he lose.
The lull in activity in the financial markets has done little to support the dollar as traders remain cautious about employment. President Trump also made a further promise yesterday. He said he will create ten million jobs in ten months as part of the return of industry. That is a bold and virtually impossible vow to keep.
Yesterday, the dollar index fell to a low of 92.61 and closed at that level. That completed five days of consecutive losses.
Greater unity being promoted to drive the economy forward
Two major changes have been proposed so far. The first is that the split between grants and loans should be amended to make more of the funding to be in the form of loans and supported the creation of an emergency brake.
Both those proposals seem to favour what was being demanded by the Frugal Five and will test the markets (probably unlimited) appetite for common bonds.
Going a stage further, the council has become concerned about the slack of unity in the financial sector. It is proposing a major review of the macroeconomic mechanisms that could be put in place to provide a solid fiscal base.
While that is a wordy and typically EU way of saying we need fiscal unity it is carefully designed not to alarm those who desire their independence.
The EU economy is under intense pressure from the fact that the UK has demanded that tourists returning from many EU countries should self-quarantine for fourteen days upon their return. With the lockdown continuing to be lifted in the UK this means that those arriving back expecting to return to work have had their plans scuppered and, in many cases, have been forced to cancel holidays.
The effect of this on several countries most prominently Spain could be devastating. TUI, the German based pan -European holiday company has reported falling bookings not just from the UK but from Northern Europe too.
While individuals cannot be criticized for not travelling despite there being no restrictions as yet across the mainland, it means that the level of support needing to be given to nations already suffering could rise significantly.
Despite this potential hit to the economy, the euro continues to remain strong versus the dollar. Yesterday it rose to a high of 1.1881, closing at 1.1870.
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.”