Jobs data a one-off?
24th March: Highlights
- Unemployment falls for first time since beginning of Pandemic
- Yellen and Powell team up to testify to Congress
- No shortage of confidence in (eventual) recovery
Unemployment falls to 5%
It is noteworthy that the Government has hardly rushed to take credit since it is well aware that the numbers will be significantly worse before any permanent improvement is seen.
The truth about the data is that very little has changed over the past month despite the Budget promising a brighter future.
The most concerning aspect of the country’s emergence for the lockdown will be the jobs market.
Hospitality will be far and away the most badly hit as venues continue to be concerned about social distancing and the Government monitors the removal of restrictions in a forensic manner.
Inflation data will be released this morning, but a marginal rise is unlikely to make any difference to current monetary policy,
Boris Johnson, chastened by criticism of his performance last year, will not be slow in coming forward if the rate of infections rises again.
The UK vaccination programme has provided Johnson with a certain degree of leeway despite the data for the effect of reopening schools not yet being available.
Chancellor of the Exchequer Rishi Sunak spoke yesterday of the global economy being at something of a crossroads.
He commented that cross border taxation needs to be considered given that technological advances mean that suppliers can pick and choose their markets but also pick and choose tax regimes as well.
As mentioned recently Central Banks and those responsible for fiscal policy are destined to look at more green investments in the coming years.
Yesterday, the pound was roughed up by a dominant dollar. It fell to a low of 1.3745, closing very close to that level.
It looks set to challenge medium term support at around this level, but a lot depends on the performance of both the Fed and the dollar.
Powell still believes in loose policy
Janet Yellen went first. She confessed that the Biden Plan will lead to tax increases. That will rile the Republicans but there is nothing they can do until the mid-terms and they seem an awfully long way away for now.
Not content with dishing out $1.9 trillion in a combination of support and stimulus, Yellen gave congress the news that the next instalment that will be totally invested in infrastructure will amount to $3 trillion.
The financial markets are looking at Yellen and Powell and thinking either when will this stop? Or when will inflation rise, as yields on Government debt starts to rise almost exponentially.
To be fair the U.S. has fallen a long way behind the investment that has been seen in many of the country’s rivals and the time has come to level the playing field.
Powell’s comments were more about crypto currencies which appear to be his new passion now that he no longer needs to save the economy. He described digital currencies as a substitute for gold as a store of value.
That is a valid comparison since, at the end of the day, neither have any significant reason to be of value.
While it appears to be full steam ahead for the economy, the acid test will clearly be when the country is expected to stand on its own two feet. Once the stimulus has flowed through the economy and been recycled, the time will be right for a judgement on just how sustainable the recovery is.
Regional activity indexes seem to show a wide difference in the pace of the recovery. For example, the Richmond Fed index released yesterday showed manufacturing recovering modestly, while new home sales nationally fell yet the Philly fed index rocketed.
The dollar index continues to flatter to deceive. Yesterday, it rallied to a high of 92.39, closing just a few pips lower, but may struggle to break the 92.50 level in the short term.
Macron spearheading Federal Future
There are plenty of examples even from the 20th century stretching from Sarajevo to Paris via Berlin. However, to be looking forward to a new more Federal Union going forward is both commendable and foolhardy in almost equal measure.
There must be nations looking at the mess that has been made of the vaccine rollout, among other high-profile gaffes, and considering the exit door.
Yet, Emmanuel Macron, the French President is spearheading a move through the Conference for the Future of Europe to devise how the Union can be more closely aligned. Representations will be made to the EU Commission and the EU Parliament in the coming months that outline the proposed way forward.
The vaccination situation will be discussed at a summit scheduled to start tomorrow. There are several factors that may well preclude an export ban since there are, unsurprisingly, other factors in play, not least of all the tenuous agreement between the EU and U.S. regarding tariffs on U.S imports of European vehicles.
There is also the fact that a vital ingredient of the AstraZeneca vaccine is manufactured in the UK.
While the spotlight appears to fall on Germany and France to drive any recovery, Spain today announced an improvement in the size of the economic contraction it expects to see this year from 6.8% to 6%. It is likely that this is conditional upon the return of tourism this summer.
The euro suffered at the hands of the dollar yesterday. It fell to a low of 1.1842, a whisker above its long-term support around 1.1820.
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.”