PM responding to treatment

The pound reached something approaching equilibrium yesterday as an apparent improvement in the Prime Minister’s health was balanced against the economic effect of the continued lockdown.

Rishi Sunak the Chancellor, at yesterday’s press briefing made it clear that while there is anecdotal evidence that the virus is reaching its peak in the UK, the lockdown is likely to continue for some weeks to come.

While announcing £750 million of help for the UK’s charity sector, Sunak answered questions about the pace of help finding its way through the system to both workers and businesses.

With little that can be done to stave off a recession, the markets continually turn to the expectations for the severity of the downturn and the length of time a recovery will take.

The recession, when it arrives, if it already hasn’t, will differ from previous ones inasmuch as those businesses that survive will be in a position to start manufacturing, producing and selling immediately with no hindrance. It will be akin to the entire economy virtually waking up and getting back to work. There will be no encumbrance from Government which will aid the return and there will be nothing to hold back the economy which will see activity improve immediately.

That having been said, the level of devastation and the number of businesses that won’t survive is the great imponderable.

Yesterday, the pound traded without any great conviction. Against the dollar it traded between 1.2419 and 1.2288.

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U.S months away from reopening

In ever more desperate tones, President Trump resembles a farmer who looks on as his crops are devoured by a swarm of locusts.

As the Covid-19 pandemic continues to rage across the country with new hotspots springing up almost daily, Trump swings from comments about bracing for a really bad week to saying how extraordinary the recovery will be and how the U.S. will outstrip the global recovery in every way.

As other parts of the Administration concentrate on the practicalities of Federal help for the most stricken areas and making sure that there is sufficient equipment getting to those in most need, Trump has taken on a cheerleading role, leaving the details to others.

Today’s release of jobless claims data, a statistic which generally passes by without too much notice, will provide a barometer about the pace of the slowdown. A further 5 million plus claims are expected to have been made in the latest week taking the three-week total to well in excess of 15 million.

Campaigning for the November election has been suspended as social distancing rules prevent gatherings, but the Democrats former front runner Bernie Sanders seems about to withdraw from the contest, leaving former Vice-President Joe Biden to contest the election with Trump.

Inflation data will be released tomorrow although the market will be extremely thin due to the Easter Holiday,and today that will be preceded by producer prices which will show how the future trend for inflation is shaping up.

Yesterday, the dollar index continued to trade around the 100 level, it reached a high of 100.43, having opened at 99.97 and making a high of 100.43. It closed just about in positive territory at 100.13 as volatility returns to normal levels.

Talks over further stimulus end with no agreement

The cracks appearing in the economic fabric of the Eurozone/EU are continuing to grow wider.

The region’s unity is in danger of collapsing completely following the failure of talks over the past few days aimed at finding a common financial solution to the coming avalanche of slowing economic activity. With the growth and stability pact, agreed following the financial crisis, in tatters, there are fears that the most affected nations, in particular Italy and Spain will go it alone and see their debt to GDP ratios hit never before seen levels.

As they borrow almost as much as the market will allow and their economies falter these countries will face years of pain while Brussels tries to rein them in.

North/South divisions continue to flare with five nations standing firm in their refusal to agree to EU-wide liabilities with joint and several guarantees being issued. The Governments of Germany, The Netherlands Belgium Austria and Finland are constitutionally bound to protect their own economies and see Coronabonds as the first step on a slippery slope where they eventually lose control.

Once the pandemic reaches a conclusion, the EU Commission, Council and Parliament are going to need to do some serious work to repair divisions that have been gradually widening.

The future of the entire Union will be the elephant in the room at future meetings as the more radical right leaning nations question its benefit to them.

Yesterday, a joint statement from Finance Ministers was rejected with two main sticking points, access to emergency funds and the issuance of joint liabilities.

The European Stability Mechanism provides credit lines equal to 2% of a country’s GDP. However, there are conditions attached. Italy, for one, believes access should be unfettered in these extraordinary times, while other, less affected, nations want the rules to remain.

Yesterday, the single currency, in keeping with the rest of the market was relatively calm. It traded between 1.0902 and 1.0830 versus the dollar, closing at 1.0858.