UK sets out its post Brexit trade terms

Sterling remains under pressure and is still the worst performing currency in the G10 this month, despite two reasonably strong days so far this week.

The confusion over the partial lifting of the lockdown, the reopening of schools and the ability of the Government to get funds to those who most need it, is more a testimony to the return of industrial relations woes and the ineptitude of Boris Johnson’s newer recruits than a concern over the spread of Covid-19.

By most measures, even if the media objects, the infection is slowly coming under control although the death toll for Monday dented the hopes that the fall would be linear.

It is clear that the objections of parents to sending their children to school when it is still considered too dangerous for Parliament to reconvene provides a powerful image. However, it is also fairly obvious that the Trades Union Congress have spotted an opportunity they are not going to waste.

The other issue facing the UK is the subject of Brexit. The UK yesterday published its own post-Brexit trade terms with the EU. It warned of the risks to the EU, but that appears to be little more than sabre-rattling, since the risk attached to no deal and other threats appears roughly equal.

Since we are now seeing the position that Theresa May and Michel Barnier should have seen a year ago, it seems that a lot of the time spent negotiating was wasted. The fact that the second largest economy in the European Union is leaving, deal or no deal, is a major blow to both its finances and status.

The UK, on the other hand, is also risking access to its largest export market and relatively cheap labour.

The no deal threat remains but while the Prime Minister is adamant that he will follow through on his threat, sooner or later he will have to agree that a deal is a safer option, particularly given the coming slowdown of epic proportions.

Yesterday, the pound rose to a high of 1.2296, closing at 1.2255. Technically, the pound will remain in its current downtrend unless it can close above 1.2460 on a daily basis.

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Budget Office predicts 38% contraction in Q2

President Trump clearly believes that he has found the solution to the Covid-19 pandemic or at least a way of slowing it down the effect by admitting that in accordance with his physician’s advice and contrary to advice being given by experts to the nation, he has started taking hydroxychloroquine, a drug that has so far not been approved for use to fight Covid-19, which is used as an anti-malarial.

According to the USDA, hydroxychloroquine can cause heart and liver problems while the President said, I have been taking it ten days, and I’m still here. Seemingly unaware of the potential harm that could be caused to his followers who may blindly copy his actions, Trump announced almost as an aside that he has taken matters into his own hands.

Today’s release of FOMC minutes was never likely to move the markets much despite late speculation that Jerome Powell could signal his possible acceptance of negative rates. That theory was firmly put to bed when the Fed Chairman said yesterday that negative rates were not close to being on the table. That coincided with the market’s view even before the meeting took place three weeks ago, but some traders needed to hear him say it to be convinced it won’t happen even though the President backs it as a policy option.

The Congressional Budget Office announced yesterday that it estimated that the contraction of the economy in the second quarter could reach 38% on an annualized basis. That, added to 26 million Americans unemployed, paints a fairly dark picture.

Yesterday, the dollar index continued its gentle correction despite the President’s drug antics and The Fed. Chair’s anti-negative rates posture. It fell to a low of 99.23 and closed at 99.56

EU Commission to borrow Eur 500 mio. for whole Union

The announcement, following Franco-German talks that the European Commission could borrow Eur 500 million on behalf of the EU has brought a level of confidence back to the market.

The final details and acceptance by all parties are yet to be announced but it is certainly a step in the right direction.

Yesterday was about as mixed a day for French President Emmanuel Macron as it could be. Having found a form of words to convince Angela Merkel that Germany should back down in its demand that funding for the recovery from the devastation of the Covid-19 pandemic should be in the fiorm of loans, convincing her that grants would be a better option, he then found his majority in the French Parliament disappear as ten of his colleagues left the Party he leads to set up on their own in a rival Party.

The reason given was that his middle of the road election mandate had been forsaken for a right wing set of policies.

Given the notoriously fickle nature of French politics, it could be argued that Macron has done well to survive this long given how new and untested his La Republic en Marche Party is and the strides made by the truly right wing Marine le Pen.

French politics aside, the potential agreement of funding has seen short positions in the single currency trimmed since it is unlikely that either Belgium or the Netherlands (or for that matter Finland or Austria) will go against a German change of heart. It may be that some years down the road the Constitutional Court in Berlin may block the deal, but it is likely that Brussels will cross that bridge when it comes to it.

Yesterday, the euro rose to a high of 1.0927, closing at 1.0915