UK economy to take several years to recover

It is fairly clear that the predictions for the slowdown in the UK economy between April and June have little chance of being accurate. A poll of economists conducted last week by the BBC predicted a 14% slowdown. The latest prediction attributed to Chancellor Rishi Sunak puts the figure at between 25 and 30%.

Growth data is, of course, absolute and affects the population of the country but it is also comparative as has been seen in the past. This means that the true measurement of the downturn will be calculated by how the effect on the country measures up to the country’s trading partners.

It is clear that the U.S. has not only not reached the peak of infection in its most affected States, but it has barely taken hold in many others..

The Eurozone will face issues on several fronts (see below) but with Brexit still likely to take place sooner rather than later, the UK won’t be involved in the budget reallocation or any subsequent financing requirement.

Boris Johnson, despite being out of hospital and convalescing at the Prime Minister’s Country retreat has clearly been advised to only take on light duties and has left Foreign Secretary Dominic Raab at the helm.

Yesterday’s Bank Holiday in the UK and Europe brought about a quiet market with the pound receiving a mild tailwind. It opened versus the dollar at 1.2453 and closed at 1.2527.

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President in danger of falling out with virus experts

In a heated putdown of Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, President Trump reasserted that it is his decision when the lockdown in the country will come to an end.

The view that the economy could be restarted on May 1st was fiercely debated on TV over the weekend with only his most committed supporters agreeing with the President.

It is most unlikely that the lockdown will be removed in one go, given the disparity of infections and fatalities across the entire country.

OPEC agreed at its recent meeting to cut supply by 10% although is an uneasy peace with Saudi Arabia extremely wary of Russia since it is a fairly transparent supporter of Iran, the Saudi’s mortal enemy.

WTI, one of the two global benchmarks barely rose on the news. This signifies the wariness of the ability of the group to speak with one voice, as it was the thinness of the market given the Easter Holiday.

The dollar remains pressured by a slight rise in risk appetite due to the minor improvements being seen in Europe and the plentiful supply of dollars following the Fed’s latest action.

The dollar index was under mild pressure falling to a low of 99.14 but recovering to close at 99.41.

2008 all over again as the question remains; who’s paying?

In a classic case of be careful what you wish for, new EU Commission President Ursula von der Leyen must be cursing the day she agreed to accept Angela Merkel’s endorsement to stand for election. She may also ask what her predecessor, Jean Claude Juncker was doing, other than arguing about Brexit, when he should have been getting the Union’s financial house in order.

Although the current crisis is inevitably more serious that the 2008/9 Financial Crisis, given the loss of life, when its history is written it will be clear that there were no lessons learned from the previous near-catastrophic incidents

The issue of who pays the bill for the current crisis remains the hottest of hot topics with the Frugal Five (Germany, Belgium, The Netherlands, Austria and Finland) remaining adamant that they will not sign up to guarantee any part of another Sovereign Nation’s debt nor will they agree to the creation of a virtually bottomless bailout fund.

For those reasons, Italy has almost certainly moved into Italexit country with the right likely to call for a referendum. That may be closely followed by Spain.

Yesterday, Spain agreed to lighten the lockdown a little despite continued debate as to whether the peak has yet been reached. Construction sites were allowed to reopen under the strict observance of the police.

In a significant illustration of the differing pace of spread of the virus, France decided the remain in lockdown for some time to come.

The euro looks set to test the 1.10 level but that will be decided by the fate of the dollar over the next few days. Yesterday, the single currency rallied to a high of 1.0967, but corrected later in the day to close at 1.0914