One-month lockdown to hit GDP
2nd November: Highlights
- Johnson announces new lockdown measures
- U.S. economy lower than Q1 despite stellar Q3
- Eurozone economy losing momentum even before lockdowns
One month is the minimum according to Minister
The lockdown will hit the hospitality and tourism sectors hard and predictions are being made that up to 30% of pubs and restaurants may not reopen. Johnson announced that the original furlough scheme, which ended on Saturday would remain in place for the entire period of the lockdown.
The scheme has cost an estimated £40 billion already and this will add to Chancellor Sunak’s sleepless nights as he prepares his spending plans that will be released in three weeks’ time.
Reaction to the announcement has been mixed as schools and universities will remain open. This is despite the spike in infections in previously low-risk areas being attributed to university students.
The EU Commission President Ursula von der Linden commented late last week that the two remaining issues holding up a trade deal between London and Brussels are unchanged. Fishing rights and state subsidies remain the two sticking points.
EU Council President Henri Michel said that talks will continue with a view to a summit to ratify any agreement to be held in the middle of this month.
The pound lost ground last week as rumours swirled over increasing infection rates producing a lockdown.it traded down to a low of 1.2880, closing at 1.2940.
As the market has opened in Asia this morning, the pound is weaker again but not dramatically so following the lockdown news. So far (05.30) it has reached a low of 1.2899.
Q3 GDP growth owes a lot to pent up demand
While Democrat candidate Joe Biden is well ahead according to the polls, his supporters remain jittery given the similar scenario that faced Hillary Clinton four years ago.
Although the entire socio-economic outlook in the country is crying out for younger more dynamic candidates, the system appears almost rigged to produce seasoned, wealthy candidates despite both Trump and Obama having been seen as outliers.
No one can say that the President has not worked hard to hold onto his job. He is holding rallies right across the country, attending ten yesterday alone.
The financial markets thrive on certainty. So, the fact that there is a fear that should the result be close, particularly a close Biden victory, Trump could use every second of the period allowed to mount a challenge, is adding to volatility
In swing States, the predictions remain close. Trump leads in Ohio, Texas, and Iowa, while Biden is ahead in Florida, North Carolina, Georgia, and Arizona. It has been said that if Biden takes Georgia, Trump cannot possibly win. In all those States, the lead is within the margin of error.
Last week’s jobless claims data saw continuing claims fall close to 7,750k while initial claims were 751k.
The Q3 bounce back of the economy which grew by 33.1% eclipsing the fall of 31.4% in Q2 has been treated with more than a little trepidation as the outlook for Q4 has been badly affected by the rise in cases of Covid-19.
Again, how the country reacts will be a matter where the election will have some effect. While it is the decision of State Governors whether to impose a lockdown or not, tomorrow’s victor will have a lot to say on the subject.
Last week, the dollar index traded between 92.78 and 94.10 which fairly nicely fits in with its current medium-term support and resistance levels. It is hard to predict what will happen over the next 60 hours but today it could well drift lower as positions are squared.
There is also an FOMC meeting this week and the October jobs report. Both will be overshadowed by the election but still closely observed by commentators and analysts.
But slowing economy a bigger concern to ECB
The Eurozone economy grew by 12.7% in Q3 compared to analysts’ estimates of 9.5% and Q2’s 11.8% contraction.
Looking forward, it is still too early to predict the outcome of the current restrictions that are in place, but it is sure to place pressure on the ECB to add to its support for the economy. This was already being floated before last week’s ECB meeting, but the level of support needed has already been ratcheted up.
The economies of Italy Spain and France all grew by near record amounts in Q3, but with France already in a national lockdown, curfews in major cities in Spain and cases rising at a faster rate than in March and April in Italy, the outlook is for a tough winter and a long painful journey back to sustainable growth.
While this week will be dominated by the U.S. election, data for economic output will be released. Manufacturing, due to be published today, is expected to be unchanged at 54 for the Eurozone as a whole and 58 for Germany. It is too soon to gauge the effect of the lockdowns as yet.
Services data will be released on Wednesday. This is also expected to be unchanged, remaining in contraction at 46.4 across the entire Eurozone.
The euro fell back last week as the ECB hinted at further support at its December meeting and fears over a double-dip recession took hold. It fell to a low of 1.1640 on the week, closing at 1.1645.
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.”