Brexit the only game in town. Again
Morning mid-market rates – The majors
1st December: Highlights
- Johnson bullish over no deal future
- U.S. in danger of two paced recovery
- IMF calls for more support for the whole from individual members
Transition from lockdown to regional tiers secondary
While several MPs have complained about various aspects of the restrictions, and Opposition MPs will abstain, it is unlikely that we will see a return to the situation a year ago when, then Prime Minister, Theresa May lost numerous votes on Brexit.
Once the new measures have been agreed, Brexit will return to the top of Boris Johnsons to do list as the transition period now has less than a month to run.
While there has been a degree of progress, the sticking points; fisheries, and economic fair play, remain. Johnson repeated yesterday his long-held view that a deal would be preferable, but the UK will flourish outside the EU’s rigid framework and bureaucratic morass.
German Chancellor Angela Merkel echoed Johnson’s sentiment while commenting that a few States in the Union were losing patience. She went on to say that we don’t need a deal at any price although agreement is preferable.
Irish Foreign Minister Simon Coveney summed up the mood by seemingly contradicting his own opinion. First, he said that this is a key week, and he believes a deal can be done. He then went on to say that no deal is possible without movement on fishing rights.
Brexit has been part of the way of life for the UK for so long it is hard to imagine that a month from today, the transition period will end, and the UK will be independent for better or worse. It will become the living test case for all the theories expressed on both sides of the argument long before the Referendum took place.
For the pound, the drivers remain Brexit pessimism versus vaccine optimism and while both remain live, the currency will see a high degree of volatility despite entering the month in which the market traditionally slows down.
Yesterday it reached a high of 1.3385 but traders got cold feet about a push beyond the 1.34 level and it retreated to close at 1.3328.
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More help from Washington vital
The necessity for a large portion of the population to need the Government’s support had seemingly been completely eradicated from a society which traditionally demands its citizens stand on their own two feet.
This has become impossible because the Coronavirus Pandemic has seen jobs disappear and prohibitive restrictions come into force in several States.
Unemployment, even following the end of the Pandemic, will be an issue for the country for years to come and while Trump promised to bring home millions of jobs that were lost as the country exported its manufacturing capability , it is unclear what Biden’s plans are.
Yesterday, the Fed announced the extension of four of its Pandemic relief initiatives until the end of the first quarter of next year. While mostly technical in nature, this shows that going forward, Chairman Jerome Powell remains committed to supporting not only the economy, but society as well.
Powell will today provide testimony to Congress in his half-yearly report on the economy. He will be accompanied by Treasury Secretary Steve Mnuchin.
Powell’s speech today to the Senate banking Committee has already been published and he will concentrate on the challenges still facing the economy from rising cases of Coronavirus while acknowledging the production of a usable vaccine.
There was no mention of the apparent antipathy that has developed between Powell and Mnuchin over the Treasury Secretary’s withdrawal of several Federally funded relief schemes.
Mnuchin will talk of the need for a targeted fiscal package. This continues the policy of the Trump Administration of only providing support where it is needed, and not providing support for those who choose not to work.
The market’s attention is turning towards the employment data that will be released at the end of the week. Weekly jobless claims are unlikely to turn around their recent fall, while the continuing claims may turn south as well. On Friday, the NFP for November will be published and initial expectations are for a fall from 638k new jobs created to 520k.
The dollar index fell to its lowest level since late April 2018 yesterday, but recovered to close at 92.03. It remains under pressure as the market continues to see positive outcomes from the production of a vaccine but is likely to remain supported at lower levels in the short term.
Richer to subsidise the poorer but at what cost?
As it is becoming clear what the longer-term effect will be and what will remain once a vaccine has been delivered, distributed, and administered, the question of the economic fallout will need to be addressed.
Earlier in the year, and in other countries and regions, it was assumed, that the Pandemic would end, and life would quickly return to normal like the closing sequence of a disaster movie.
Unfortunately, reality is vastly different, and the effect of the Pandemic is likely to be felt in Brussels and beyond for a long time if not permanently. It seems that there has been no consideration made of what ifs, and a wholesale economic disaster has never been fully addressed. The Financial Crisis was mostly on paper, for a large portion of the population although Cypriots will disagree with that description.
The fallout from the Pandemic will be far more significant in human and economic terms with the basic economic question being who will pay for the millions of jobs that are disappearing. The frugal five are certain to regale at the demands that will be put upon them and the level of mistrust between rich and poor, north, and south and haves and have nots is growing at an exponential rate.
The EU Commission in general and President Ursula von der Linden in particular, appear to be unprepared and unable to grasp the size and seriousness of the issues that are beginning to become part of daily life and the normal tactic of waiting them out simply doesn’t apply.
The impending economic implosion is not in any way being borne out by the level of the currency with the euro briefly touching the 1.20 level versus the dollar yesterday. It made a high of 1.2003 but retreated to close at 1.1927.
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.”