It’s not what you say, it’s how you say it!

The Prime Minister returned to head the UK’s fight against the Covid-19 pandemic yesterday and made, what most agreed, was a rousing speech both defending the Government’s timing in locking down the country’s economy on March 23rd and promising that talks on easing of restrictions would begin in a few days.

The Chancellor announced a measure to ease the logjam caused by banks’ unwillingness to lend to SME customers hit by the lockdown as the Government only guaranteed loans up to 80% of their principal amount. Rishi Sunak announced that the Government will guarantee 100% of the loan going forward and the system would be simplified to allow funds to flow into borrowers’ accounts within 24-48 hours of application.

These actions lifted the pound which had been languishing given the market’s concern that the country would fall behind the curve once the lockdown restrictions were lifted and the economy started to move again. Johnson commented in his speech that it was becoming time to get the engines of this great nation started again, but also warned of the dangers of going too far too fast.

Futures positions turned negative on Sterling for the first time since last December when the latest data was released on Friday. Over the past couple of months, long Sterling positions have been being gradually reduced and now shorts outnumber longs for the first time since the darkest days of Theresa May’s Brexit debacle.

Yesterday, the pound rose versus the dollar to a high of 1.2454, closing at 1.2431.

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Powell defying Trump’s criticism

Jerome Powell has become used to breaking stereotypes since he took over as Chairman of the Federal Reserve a little over two years ago.

His choice as Chairman was questioned at the time due to his background in law rather than economics. Powell has proved himself to be a quick learner and although his critics, including President Trump, consider several of his achievements to be more by luck than judgement, Powell has become the epitome of the adage it is better to be lucky than good.

Opinions apart, Powell has shown himself to have a lawyer’s mind for the manner in which the Fed has tackled various issues that have come its way over the past two years. His approval rating is higher than any Fed Chairman since Alan Greenspan. The fact that there have only been two others in between should not detract from the accolade.

Despite a penchant for due deliberation, Powell has shown himself to be nimble when necessary over the economic effect of the Covid-19 pandemic. As the country rages over when the lockdown will be lifted, Powell has ensured that the money is in the right place, where and when it is needed. The scale of the job losses over the past five weeks have been difficult to imagine but the Fed assisted by the Treasury have ensured that aid is available to those that need it.

This week the FOMC will most likely perform a review of the actions taken so far and decide what will be necessary when the economy starts again. At his press conference, Powell is unlikely to be given a rough ride as it is difficult to question his actions so far.

The scale of Powell’s task going forward will be clear when the preliminary data for Q1 GDP is released tomorrow. It is hard to see that the economy could have contracted by 4% YoY as has been predicted in some circles since it is this quarter that will bear the brunt of the lockdown.

Yesterday, the dollar index drifted lower, falling to 99.83 and closing at 100.04

ECB having to go it alone

This week’s ECB meeting could easily be considered the most important in its twenty -year history. That title doesn’t signal that it will take any monumental decisions. In fact, it probably means the exact opposite.

The Central Bank has seemingly been struggling against a tide of economic indecision since before the 2008/9 financial crisis. It has been proven time and time again that EU Commission President Ursula von der Leyen’s recent assertion that it is a fair-weather Union is, in fact, true.

Where the Fed has been encouraged in its goal of ensuring that during the lockdown those in need receive the most support and when the economy reopens, funds and funding are available to kickstart a return to growth, the ECB has been left hanging by EU Heads of Government and their Finance Ministers.

Unable to see past their split over Coronabonds, there is a dearth of alternatives that mean that at her press conference on Thursday, Ms Lagarde may find herself in an adaptation of The Emperor’s New Clothes. It is impossible to see just what more the Central Bank can do on its own despite Lagarde’s own version of Mario Draghi’s famous promise to do whatever is necessary.

Last week’s PMI’s were labelled an unprecedented collapse but, in truth this moment had been coming, with or without Coronavirus. All that has happened is a slow burn has turned into a raging inferno.

While hardly any analysts will actually embrace the Doomsday scenario since few can predict the lack of political will, that could lead to the demise of the entire Union, any recovery from this calamity is going to be slow and extremely painful.

Yesterday the euro joined several currencies in marking time. It traded between 1.0811 and 1.0860, closing at 1.0829.