25 September  2020: The new new normal

The new new normal

25th September : Highlights

  • Sunak reveals plans to protect jobs
  • Fed Presidents push for fiscal support
  • Eurozone economy slowing

Sunak offers hope on jobs but admits there will be losses

Rishi Sunak, the Chancellor of the Exchequer, announced plans yesterday to deal with the economic fallout from the fresh restrictions announced by Prime Minister Boris Johnson this week.

The original furlough scheme which is being gradually wound down and will end at the end of next month will be replaced by a new scheme which begins on November 1st

In a plan to save jobs anyone who works fewer than their normal weekly hours can qualify for a top up which will be paid for jointly by their employer and the Government.

Anyone who works 33% of their hours will receive 77% of their pay.with 55% paid by the employer and 22% by the Government.

Some employers have complained that paying 55% of an employee’s wages for 33% output may not be viable going forward but the scheme has been generally welcomed by employers groups.

It is true that the scheme is far less generous than the plan it replaces but it is being delivered in what are , for now, totally different circumstances. The reduction of support from the original 80% to 22% allows Sunak greater flexibility to target further schemes where they are needed in the future.

Sterling, having fallen across the board this week reacted in lukewarm fashion to Sunak’s plans, remaining close to the bottom of its recent range.

it reached a high of 1.2781, but fell back to close at 1.2748 versus the dollar.

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Several Regional Fed Presidents support Powell’s plea

A number of Regional Federal Reserve Presidents speaking this week may have disagreed over the treatment of inflation going forward and just how fast it will rise as the economic recovery gains pace, but one thing they all agree about is the need for the Administration to move far more quickly towards agreeing a package of measures to support small business and those threatened by the lack of support of have already become unemployed.

Jerome Powell, in his testimony to Congress this week, made a fiscal support package the central theme of his comments about the strength and pace of the recovery.

Yesterday’s data for weekly jobless claims for the week ending 18th September reported that 870k new claims were made up from 860k last week. Continuing claims fell but only by a marginal amount from 12,630k to 12,580k.

Job creation is a central theme of the Fed’s plans going forward but Powell and his colleagues on the FOMC whether voting members or not are becoming more strident over their demands for help from Congress and the Treasury.

Powell believes that the U.S. is far from out of the woods as far as the recovery is concerned and should a genuine second wave hit even after the New Year, pinning hopes on the development of a vaccine, even if that were to be in limited quantities, the effect on the economy, particularly as progress would be slowed by a new Administration, even if Trump were to win, means that an agreement of new support is paramount.

Yesterday, the dollar index trod water as the market evaluated its recent rise. Having broken resistance at 94.00, traders are unsure if they are able to support further gains given the present uncertainty.

It rose to 94.59 but fell back on profit taking from weak longs to close at 94.30, just 3 pips on on the day.

Germany unintentionally going it alone

The data for economic activity across the entire Eurozone that was released this week showed that far greater proactivity is needed centrally for the nascent recovery to really take hold.

At the risk of sounding like a broken record, the economic growth that has taken place since lockdown restrictions were lifted has been proven to be due to pent up demand from consumers robbed of their ability to get out and shop.

While manufacturing output rose, even though that was by less than had been expected, services which were affected far more by the lockdown continue to disappoint. Overall services output for the region actually fell back into contraction.

With several economies risking further lockdown restrictions as cases of Covid-19 grow, the time for concerted action is now, before the Winter flu season adds to the problem.

Germany remains head and shoulders above the rest of the region as new cases remain at a level that can be dealt with by their existing facilities, other countries, even Italy which was also coping well, are seeing worrying signs of infections getting out of control as they have in other areas.

While the original outbreak brought an almost totally humanitarian crisis, the advances in understanding that have been made will make the second wave a more economic disaster.

There was something of a fatalistic concern about the recession caused by the original outbreak but now it has become reality and tough decisions on further support need to be made there appears to reticence to do so.

The euro continues to be the markets easiest means of showing its concern. yesterday, the single currency recovered a little but remains weak. Itrose to a high of 1.1687, closing at 1.1672.

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.”