Haldane paints a brighter picture

The Bank of England’s Chief Economist Andy Haldane in an interview yesterday said he saw the possibility of a shallower than expected recession given the fact that activity and output indices are already bottoming out.

Haldane’s cautious optimism which counters the less factual and more gut-felt reactions of a month ago will be seen by the market as an indication that the Bank of England may have completed the extraordinary support it has been giving the market since the pandemic crisis began.

The fact remains however, that the Treasury still faces a huge funding gap that won’t come close to being closed for a significant period as the furlough scheme has been extended until October and tax income from business and personal taxation will remain sluggish.

Since Prime Minister Boris Johnson has given authority for all retail outlets to reopen subject to Covid-19 restrictions, VAT receipts should start to pick up which also supports Haldane’s argument.

The next, and most complex, of all the service sector restrictions that have decimated the economic segment will be the reopening of bars, restaurants, theatres, and cinemas.

These limits on the broad entertainment sector will have to stay in place for some

considerable time given the social distancing regulations that the Government continues to insist upon.

From a personal perspective, there has been significant interpretation of the rules, not least by the PM’s Chief Advisor and these will need to be clarified if they are to be loosened in the coming weeks. This will lead to a long lead in to getting several areas of the economy up and running as the ancillary sectors await their release.

Haldane’s comments led to a rally for Sterling, exacerbated by news from other G10 nations that created a rise in risk appetite. Commodity prices including oil are on the rise again too.

Despite this, the pound still looks fragile as it challenges each resistance point. Traders are aware that liquidity may still be an issue and one large order could bring it back to 1.20 in a very short time.

Yesterday, it traded up to 1.2363, eventually closing at 1.2337. The next resistance point to watch for is at 1.2440 but for now, support is likely to be found around 1.2280 but that probably wouldn’t survive a major attack

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Kudlow sees glimmer of hope but warns on jobs bonus

There is a glimmer of optimism invading market sentiment at the moment as many nations are announcing falls in both infections and mortality rates due to Covid-19.

Such optimism is barely noticeable as a change in mood from the administration which has had several attempts at predicting when the lockdown would be lifted and so far,hasn’t even been close to the bullseye. This has led to the President having fact-check riders added to some of his Tweets.

Larry Kudlow the Chief Economic Adviser to the White House used both the stick and the carrot yesterday when discussing lockdown support.

In announcing that he saw a glimmer of hope (extremely cautious for the White House) that the economy may be getting back on track sooner than expected (that’s more like it) he said that he doubted that the additional $600 per week unemployment payment would not survive the next round of discussions but then suggested that it could be replaced by a back to work bonus of limited duration.

This is a very Republican move and has been immediately condemned by the Democrats who see the gap between employed and unemployed growing through no fault of the less fortunate members of the workforce.

With Commodity prices rising and the tensions between Beijing and Washington below the surface for now, traders were prepared to accept that the worst may be close to being over and risk appetite improved.

The dollar index subsequently fell to a low of 98.93, closing within a few pips of that level. The 100 level which looked likely to be breached a couple of days ago, now looks a long way away such is the fickle nature of the market.

Market Itchy about prospects for concerted action

Having announced to the world a couple of weeks ago that talks between Germany and France had spawned an agreement over the payment of around Eur 500 billion in grants to those members of the Union suffering the most from the aftermath of Covid-19, the market wants to see the details.

Almost throughout its existence in several forms, there have been questions about the longevity of the various treaties that have been signed with several nations being allowed to join under dubious political rather than financial motives. Cyprus is the

most obvious recipient and it was dragged close to bankruptcy in the 2008/2009 crisis.

Now rumours are emerging that the Franco-German agreement has run into difficulties as it is not just Germany who saw the provision of grants as not within their gift to provide.

While the case before the German Constitutional Court is ongoing but Austria, The Netherlands, Belgium, and Finland still need to be convinced.

In a group that leaks information like a sieve, it is most unusual, if talks are progressing,there no element of public rumour

So, the wait goes on and the markets get more concerned. The rise in risk appetite benefitted the single currency yesterday. It rose to a high of 1.0914, and closed at1.0893.

It will take a significant announcement from Brussels made by the EU Commission and backed by the entire Union for 1.10 to be not just threatened, but significantly broken, but hope springs eternal.