Sunak and Bailey team up
6th November: Highlights
- Sunak reluctantly stretches Furlough scheme to next March
- Biden confident, Trump reverts to the courts
- Falling expectations over recovery
Furlough scheme to last until March
Andrew Bailey, the Governor of the Bank of England announced that the Bank would increase the level of its purchases of Government debt from £300 billion to £450 billion.
Despite his own concerns over the level of borrowing needed to fund an extension, Chancellor Rishi Sunak announced in Parliament that the furlough scheme under which the Government funds 80% of the wages of those furloughed would now last until next March.
This serves as an acknowledgement that there will be no quick fix for the Pandemic despite the current one-month lockdown. Sunak has effectively thrown out the most recent schemes he has announced and gone back to the original level of support.
His actions drew criticism. First Scotland’s First Minister Nicola Sturgeon lamented the fact that having ended last Saturday with businesses being forced to prepare by laying off workers only for it to be re-established yesterday too late for those who have lost their jobs.
Shadow Chancellor Anneliese Dodds responded in Parliament to Sunak’s announcement by criticising the lack of joined up thinking and the Governments reactive responses where they are always behind the curve.
With the infection rate continuing to climb and the country in lockdown for a month the outcomes of the actions both social and economic remain to be seen.
Andrew Bailey, in announcing the increase in support, slashed the outlook for the economy during and following the crisis. Consumer spending is well below average levels and inflation has been dragged well below target impacted mainly by lower fuel prices.
The pound was still mostly affected by the U.S. election. Against the dollar, it rose to a high of 1.3148, closing at 1.3145.
Lawsuits and recounts as election hinges on four States
It appears that Democrat contender Joe Biden has a clearer path to the White house, in which he can declare victory without having to rely on the 20 Electoral College votes from Pennsylvania.
With six States still to declare, Trump commenced legal proceedings in four States: Pennsylvania, Georgia, Nevada, and Arizona.
It is unclear what the exact complaint is but, as the election from the year 2000 proved, it is necessary to lay the groundwork early. In that election between George W Bush and Al Gore, it was the result in Florida that was disputed, and the result took weeks to be declared.
The six States still to declare a definitive winner are Arizona and Nevada in the west, Wisconsin and Michigan in the North, Pennsylvania in the east and Georgia in the south.
If as expected, Biden takes Arizona and Nevada having, according to some networks, already won Wisconsin Trump will be hard pressed to catch him.
The more than messy outcome of this year’s election reflects badly on so many of the country’s institutions. If one considers that even after 58 Presidential elections, issues still arise then it is clear the system is flawed.
However, with 50 States each exercising their right to make their choice for President in their own way, any form of standardization is impossible. Trying to use Federal muscle force anything on the entire country is sure to backfire. That has been seen in the way the lockdown was handled earlier in the year.
The country is in a state of flux or limbo at the moment and no matter how enthralling the contest has become, a support package for those affected by the Coronavirus Pandemic remains as far away as ever.
Following the FOMC meeting yesterday which left rates and the level of Asset Purchases unchanged, Fed Chairman Jerome Powell expressed his concern over the growing number of Covid-19 cases both at home and abroad and said the outlook remains extraordinarily uncertain. The market will remain on Fedwatch since the FOMC is not shy of acting between meetings.
Yesterday the election outlook continued to add volatility to the dollar index. It traded between 93.53 and 92.47, closing at 92.58.
Today’s NFP data for October may be lost in the fog of election fever. Yesterday’s weekly jobless figures continued the slow improvement seen recently and the same is likely of today’s data.
Economy to remain below Pre-Covid level until 2023
In some quarters, even that estimate is seen as optimistic.
While being whispered only very softly, the question is now being asked whether the Eurozone can survive such pressure. It is fairly certain that it cannot survive in its current guise.
It has been clear since the financial crisis that the region is made up of haves and have nots. That referred to the size and makeup of their economies.
It was simple to see which were the stronger and more powerful nations able to exert their will on those weaker States who would need support and would cede a degree of independence to obtain it.
The current crisis has a far broader base and in a similar manner to the U.S. election, every country wishes to handle it in its own way.
Some have locked down again, while others continue without restriction and between those two reactions there is confusion, half-baked reactions, and a desperate and growing need for support.
Many of the German population must look at the current situation and ask whether the economic domination of the EU is worth the level of stress and distress it brings, lowering the nations status globally.
It will be a significant surprise if questions are not asked about the long-term viability of what in some circles is still considered an experiment once the virus is under control and growth begins to return.
In the meantime, the economy is shrinking, and currency volatility is increasing. Yesterday, the euro rose back to its recent highs. It reached 1.1859, closing at 1.1826.
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.”