Every job and business cannot be saved

Chancellor of the Exchequer Rishi Sunak appears to be shouldering the burden of the UK’s economic recovery from Covid-19 almost alone.

While the majority of the Government’s resources are being channelled into fighting the second wave, Sunak is trying to ensure that there is some form of an economy to return to once the infection rate is under control.

Yesterday, he made his maiden speech to the Conservative Party Conference which is being held virtually this week.

He was direct and to the point, expressing the values of the Conservative Party and his commitment to protecting jobs as far as possible but also balancing the books. He repeated that every job cannot be saved, neither can every business, but he remains committed to do all he can to support the recovery.

His most significant obstacle would be a second nationwide lockdown and the most recent data shows that the threat made in the middle of last month that the country could be seeing 50k new cases a day by the middle of this month appears to be prescient.

Even without the glitch that led to 16k new cases not being reported with the knock effect on track and trace, the number of new cases is rising exponentially. The balancing act between the economy and saving lives is becoming impossible to maintain.

There have been two significant actions from the Government that have exacerbated the situation and ensured the second wave has begun. The first was the reopening of the hospitality industry, the second is the return of university students. While the former issue was clearly economic, the latter placed students from a multitude of areas with various infection levels in an almost impossible position.

Recrimination and second guessing the actions of Boris Johnson and his team will come later but for now the economic effect of these actions is lengthening the time it will take for the economy to recover by an unknown but considerable period.

Yesterday, the pound came close to touching 1.30 versus the dollar, closing at 1.2991.

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Stimulus and a relief agreement paramount to recovery

There has been a growing feeling since the original relief Bill expired at the end of July that the game of playing politics has been more important to congress and the Administration that helping the grass roots of the economy recover from its worst crisis since the great depression.

While there have been worthy demands from Democrats countered by politically motivated ones from the Republican Administration, the ability of the Federal Reserve backed to a large extent by the Treasury has been under severe pressure.

Trying to provide support for all levels of society by keeping banks’ lending by ensuring they have sufficient liquidity has fallen squarely on the shoulders of the Fed. Chairman Jerome Powell.

Powell has not always been wholly trusted by President Trump who appeared more interested in bucking a trend than anything else when he appointed Powell, a lawyer, when the role clearly demands a solid economic understanding. What Trump got was a Candidate who married a lawyer’s grasp of timing and an understanding of underlying issues with a fierce determination to remain independent.

Following Trump’s brief hospital stay the emphasis of the Support Bill has switched to talks between Nancy Pelosi and Steve Mnuchin as the penny has finally dropped that the delay has damaged the President’s chances of being re-elected. It may be too little too late but as the politicians try to find an agreement, the Fed has been reduced to the role of functionary where Powell will be asked to implement any agreement when he would be far better placed as referee.

The dollar index remains hemmed in as it awaits further news on Trump’s treatment and recovery following his discharge from hospital last evening.

Yesterday it traded between 93.37 and 93.87, closing at its high for the day

Eurozone economy beginning to creak

The wisdom of the Republic of Ireland’s membership of the EU has often been a question particularly since it is almost completely tied to the UK and will be affected by Brexit far more than any other part of the EU.

It has now come to the forefront of Brussels attention as it did in the financial crisis as the Covid-19 infection rate has spiked alarmingly.

There is a proposal in place from the Government’s scientific advisors for the entire country to move to a level five alert level which means a return to full lockdown. That would be a radical move since the majority of the country remains at level two with two more seriously infected regions at level three.

While the effect of this on the mainland Eurozone is minimal, it could turn out to be a template for the ability of the PEPP in its present form and current level to cope with the demands that will be placed upon it.

The spikes in infection that are being seen in France and Spain have hit investor confidence hard. The latest data shows it falling to 8.3 from last month 8. Retail sales, however, improved both month on month and year on year although as the threat of a lockdown grows, the focus of the consumer will again switch from nice to haves to must haves.

Output data that was released yesterday was also relatively encouraging with both services and manufacturing data combining to create an increase in the composite number. One worrying result is that services output remains in contraction.

The euro appears to have found some support in the low 1.1700’s and closed yesterday at 1.1791