600k jobs lost since lockdown

Current data releases in most major economies seem to be following the same trend; bad but could have been much worse. The population is now seeing the effect of the pandemic in black and white as the Government struggles with the dilemma of public health versus the economy.

Boris Johnson and his Cabinet are in an impossible situation where they have to be right in very decision, since on the one hand lifting lockdown too soon could lead to a second spike of Covid-19 while retaining the measures that protect lives could see thousands of businesses fail and unemployment become far worse than the data that was released yesterday.

600k jobs were lost in the three months to May, pointing to the biggest jobs crisis in more than 25 years. With the Government’s furlough scheme and other support mechanisms paying the wages of more than 9 million workers the potential effect of the pandemic on the economy has been dampened down according to some analysts while other say that since this support cannot go on forever that the issues has simply been kicked down the road.

Of course, the latter is almost certainly true, but Chancellor Sunak will be in a much better position to provide longer term and more targeted support once there is a degree of activity returning.

It now seems likely that hospitality and certain other services sectors will be allowed to reopen in early July provided the five tests continue to be met, but continual monitoring will be necessary to head off a further outbreak.

News of a drug that has been found to help save lives of those already critically ill provided some relief yesterday but predictions for how long the economy will be affected continue to lengthen.

The pound has benefited from a feeling of optimism over a trade deal between the UK and the EU, since the penny appears to have finally dropped that an agreement is vitally important to both sides since the time for sabre rattling and threats has passed. It rose to a high of 1.2687 but drifted back to close at 1.2572.

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Fed to support whatever the economy needs

Jerome Powell the Chairman of the Federal Reserve in his semi-annual testimony before Congress added a sense of reality to the often-overblown hype that appears to emanate from the Trump Administration.

Far from being off to the races as described by Trump’s Chief Economic Advisor, the U.S. economy faces a period of heightened concern, described by Powell as significant uncertainty over the timing and strength of the recovery.

This is despite some encouraging data having been seen recently. Powell was in a determined yet confident mood and almost admitted that the data, particularly for unemployment may have been unhelpful in keeping the nation’s feet on the ground.

Data for retail sales that was released yesterday was also encouraging, perhaps not in the same league as the May jobs data but it also predicted the possibility of a V-shaped recovery.

The Fed likes to say that it deals in facts not predictions but with the data providing a sense of optimism Powell can only go with the flow and promise support as and when necessary in the future.

Retail sales in May grew by 12.4% following a fall of a little over 15% in April. This depicts an easing of lockdown measures but with the end of the Government’s support schemes coming next month a note of caution is necessary.

Powell contends that despite some encouraging recent data, the levels of activity in the economy remain well below pre-pandemic levels.

The dollar index retains a wait and see or reactive outlook, as very few investors are willing to bet on the U.S. either way. Yesterday, the index rallied marginally, reaching a high of 97.25, and closing at 97.01

Eastern nations look to west for support and business

With borders between EU member states starting to open and the Eurozone beginning to look like a single state again, fears over a second spike continue to diminish despite a few concerns.

The next issue that needs to be addressed in order to continue the one state, one goal theme is the agreement of an overall structure for providing support to those nations worst hit.

In the recent past, the crises that have hit the region tended to be divided along a north/south axis, but the economic effect of the pandemic seems to be more east/west.

While several of the nations in the east of the region locked down very quickly, which benefited their population, Slovakia, for example, had a little over 1,500 cases and 28 deaths, the effect on their economies is potentially far more devastating.

It had been thought that since Italy and Spain were most affected by the pandemic, that they would be the most in need of financial support to recover, but the length of the lockdown in countries like Slovakia means that their economies will take longer to recover and will need support. Of course, since their economies are dwarfed by those in the west, the size of the financial aid will be less while the human effect will be equally serious.

The IMF’s Chief Economist commented yesterday that the Fund is likely to revise its forecast for global activity in the coming weeks citing both the length of time major economies will take to see anything approaching pre-pandemic activity and worries over a second spike taking place in Beijing.

Yesterday, the single currency reacted to a rising dollar falling to a low of 1.1228 and closing at 1.1263.