Hand that man a Cape and Mask
3rd July: Highlights
- Optimism over Brexit deal but serious differences remain
- Mixed employment data and Covid concerns driving dollar
- Bundestag passes bond buying acceptance
Sunak to receive superhero status if he can save economy
In his eagerness to divert attention from the Government’s mounting list of errors of judgement over the handling of the Covid-19 pandemic, Johnson was desperate to get out into the public domain his plans for a massive boost to spending on infrastructure projects across the entire country.
Unfortunately, Sunak has been left holding the baby, when it comes to explaining just what the Government’s priorities will be, when and where they will start and most importantly how they will be funded. So now, Sunak who is wrestling with saving jobs, paying for continued support for those who are affected by the lockdown is now spokesman for the Government’s flagship project to return the country to growth.
He is probably entitled to ask just where his remit begins and ends and probably for a pay rise too!
When the Bank of England released its Monetary Policy Report in May it was looking at a V-shaped recovery where the reopening of the economy would be something of a binary event, closed one day, open the next. It appeared to want to reverse the lockdown, which happened in that manner, but as the lockdown has gone on, it has become clear that such a strategy is impossible.
The four quarters of the fiscal reaction have presented Sunak in partnership with the BoE with different challenges as each has morphed into the next; first the initial almost off the cuff policies which headed off the first wave of furloughs, this became phase two which was the short-term recovery.
This created corridors in which vital services could be maintained and key workers were identified. This then became phase three (where the country is currently), second wave issues and funding the first phases and this will be followed by phase four which Sunak will go some way to shaping next week.
The pound remains stuck between Brexit and the economy as it searches for further positivity. Yesterday, it traded between 1.2530 and 1.2456 versus the dollar, closing at 1.2468 as a close above 1.25 remains elusive.
But jobless claims remain stubbornly high
The numbers produced across many sectors have grown to such an extent that such an event or a prediction of 100k new cases a day being seen have very little effect. The market seems to have been turned into a macro reactor, where everyday statistics seem to have little or no effect on either the currency or day-to-day trading decisions.
This is making analysts’ roles all the more difficult as it is becoming impossible to place a considered view on any single piece of data or its effect on the dollar.
Since today will see the beginning of a Holiday Weekend in the U.S. the jobs report was moved to yesterday where it coincided with the weekly jobless claims.
It could be said that, for now, the weekly report has taken over from the NFP as it is more current and is less subject to revision. In the past week, a little over 1.4 million new claims were submitted in contrast to the stunning (when considered in isolation) non-farm payrolls data.
The two cancelled each other out as jobless claims, that had been falling weekly until they reached the current level, appear to have plateaued. Which of the two are the more important to the medium term is almost impossible to say but the weekly data should give a better barometer on the economy as the decisions are made on the next phase of the support program.
The dollar index was trading at 97.11 as the NFP data was released. It leapt to a high of 97.33, couldn’t attract any more bids and slowly drifted back. It eventually closed at 97.21.
This price action gave a further indication of the market’s current state. The currency is hedged in between data which will represent a recovery and poor data that will attract the attention of the Federal reserve to limit its effect.
After German State decision, can the fund be delivered?
In a similar manner to the U.S., the Eurozone awaits a single macro event that will either bring cause for celebration or see the entire edifice crumble to dust.
Every piece of data, every comment from a leader, and every State, deciding alone, to put another event in place to combat the effect of the pandemic merely chips away at the monument to lethargy that is the decision on the Pandemic Relief Fund.
In normal times, commentators, analysts, and the press would be howling for action, but for now they seem content to watch as any semblance of a centralized response proves to be beyond Ursula von der Leyen and her colleagues in Brussels. Just as Mario Draghi must have felt watching Christine Lagarde struggle when he handed over the reins of the ECB, so must Juncker be feeling very similar.
The summer lull is almost upon Europe but this year it will have its own place in the economic recovery. Will there be a lull? Will the beaches of the South be heaving with those from the North craving relief from the unremitting pressure of the pandemic? Or will they stay at home, saving their health but adding to the perils facing Spain, Italy, Portugal, Greece, and Cyprus.
Yesterday, the German Parliament approved a Bill in which it clarified its support for the ECB’s bond purchase regime, thus defusing a potential crisis. The ECB had already promised a degree of proportionality in its actions which is more linguistic sensitivity than any material change.
The euro drifted yesterday as it awaited fireworks from the market over the U.S. data. The only fireworks seen will be tomorrow when America celebrates Independence Day. It fell to a low of 1.1223 and closed at 1.1239.
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.”