24 September  2020: Sunak to outline further support

Sunak to outline further support

24th September : Highlights

  • Sunak scraps Autumn Budget
  • Slowing activity points to need for fiscal support
  • Services activity slips back into contraction

Sterling falls as Chancellor prepares to project jobs

Following measures announced earlier in the week by Prime Minister Boris Johnson to control the spread of a second spike in Coronavirus, the Chancellor has begun to consider how jobs will be supported.

Rishi Sunak began by cancelling the Autumn Statement that was to be delivered in November. This is the announcement of spending plans and more importantly how they will be paid for in the coming year.

His decision to cancel this and speak today on new measures he is going to introduce to protect existing jobs rather than provide detail on how new ones will be created is an illustration of the gravity of the situation.

At the time of the initial lockdown, Sunak acted with great haste to introduce the furlough scheme and has backed that, working closely with Bank of England Governor Andrew Bailey with several initiatives to limit the effect of the recession.

While Boris Johnson’s actions have been continually questioned, Sunak has had something of a charmed life during his first year in office.

He is set to again ride to the rescue of those concerned about their short-term employment prospects later when he is expected to at least provide a degree of comfort to those businesses and employees most affected by the new measures.

The plans to be announced later today will replace the existing furlough scheme that is being wound down and will come to an end at the end of next month.

The financial markets while impressed by the speed with which Sunak has acted have a growing concern about the long-term result for the economy of a comprehensive replacement.

The pound fell to a low of 1.2675 but recovered a little late in the day to close at 1.2724.

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Support for Jobless necessary for recovery to accelerate

The most recent data on the state of the U.S. economy which was delivered yesterday appears to back the call made by Fed Chairman Jerome Powell during his testimony this week before the House Financial Services Committee.

In his testimony and subsequent question and answer session, Powell called upon the Administration and Democrat representatives in Congress to find a bipartisan solution by which support for small business and those individuals affected by the Pandemic can receive support.

The original Bill, which was both wide-ranging and generous expired at the end of July. The fact that there has been no agreement of support since the end of July reflects the lack of seriousness that the outbreak was treated with during its early days and the fact that the Current Administration is far more geared up to support big business.

The data released yesterday showed that manufacturing output rose only marginally while services output fell.

Several members of President Trump’s team have contradicted themselves by commenting that the matter of support is being treated as urgent yet saying that a Bill is unlikely to be agreed ahead of the election.

Today, Powell will continue his testimony while Treasury Secretary Steve Mnuchin will also be speaking. He is likely to be questioned about a timetable for further talks with House Majority Leader Nancy Pelosi.

Further data will be released tomorrow that will illustrate the strength of the economy going forward. Data for durable goods orders will be published. These are the big-ticket items like ships, planes, and other capital goods.

Meanwhile later today, weekly jobless claims data will be released. This has been stagnating recently, not improving as fast as had been hoped. New claims last week are expected to have fallen from 860k the previous week to around 825k, while existing claims may actually see a rise from the previous number of 12,628k to around 12,650k

The dollar index continues its recent improvement, breaking the 94 barrier yesterday. It rose to a high of 94.42, closing at 94.36.

Manufacturing rises, services contract, composite lower

The euro is continuing to reflect the concerns of the market far better towards the rise in infections, that are particularly affecting France and Spain, while looking towards Brussels and the EU Commission for a Federal approach to contain the spread.

The situation across the region is worsening at an alarming rate yet, in contrast with the UK where positive action, whether it is gaining total support or not, has been taken while Brussels looks on.

The inability of the Eurozone to put measures in place that will be both rapidly deployed and provide support where it is most needed brings further into the spotlight the fact that the Pandemic has hastened the region’s arrival at a crossroads.

Going forward, and for the EU to have a future both as a world power but more importantly be able to provide security and prosperity for its citizens it needs to either create a strong base brought about by Fiscal Union or simply go back to being a trading bloc.

The politicians in place nationally like Angela Merkel have shown little willingness to move this forward and it was hoped that new EU Commission President Ursula von der Leyen would further her credentials as a good European but so far she has been bogged down in detail.

Yesterday the preliminary data for economic activity for September was released and this was disappointing causing traders to abandon the single currency in greater numbers.

In Germany, manufacturing output rose strongly but services output disappointed, while for the entire region, there was a marginal rise in manufacturing by services fell, significantly going back into contraction. In both cases the composite data fell, although both remain in expansion.

This is a good illustration of the effect of the increase in cases of the Pandemic which will affect services far more than manufacturing.

The euro fell to a low of 1.1651, closing at 1.1660.

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.”