Wants zero tariffs and zero quotas

British Prime Minister Boris Johnson, sensing that the EU negotiators position may be softening, called for a Brexit trade deal to be concluded and for it to include what we all want, namely zero tariffs and zero quotas.

He appears to be confident that despite Brussels insistence that the four freedoms are an all or nothing package that the UK can agree to free movement of goods yet impose travel checks at the border.

The new Irish Prime Minister, Micheal Martin, meeting Johnson for the first time yesterday was also confident that a deal can be done.

After what seems like an eternity there looks to be a light at the end of the tunnel and common sense and a desire to work together is finally emerging.

Following the release of Q2 GDP data earlier in the week, the press continues to find ways to illustrate that if you suddenly close down just about the entire country overnight productivity, output, and activity collapse.

For example, in Q2, labour activity, measured by output per hour fell by 2.5%. This is the largest fall since records began but means absolutely nothing in terms of either the country’s response to Covid-19 and the recovery going forward

The Government has apparently decided to divide the country and its response into a more manageable form. It will continue to perform regional or local lockdowns as spikes of infection occur but will continue to lift lockdowns in areas where it can. As an example, the beauty industry, which was prevented from opening two weeks ago, will now be allowed to reopen this weekend.

The pound remains on the front foot but is still unable to break the 1.3200 level conclusively versus the dollar.

Yesterday, it traded between 1.3124 and 1.3030. It looks to have fairly solid support around 1.3000, but it will take a significantly positive event to see it close above 1.3180.

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Continuing claims plateauing

Apart from the stunning news that President Trump needs his hair to be perfect, the most important factor affecting the U.S. is the effect of Covid-19 on employment.

There is still stalemate over the agreement of the renewal of aid to those who have lost their jobs during the pandemic. While the you go up a trillion and we’ll come down a trillion mantra continues to be touted by House Speaker Nancy Pelosi, the White House is keen to show that, with the President’s executive orders released last weekend, it has moved on.

It has often been a tactic used by U.S. politicians to attach conditions, often which have no relationship at all to the main subject, to agreements in order to push through unpopular legislation. This is happening with the support bill and is one cause of the stalemate.

Weekly jobless claims were released yesterday for the week ending August 7th.

The data showed that new claims fell below a million for the first time since lockdown. There is a school of thought that many people may have avoided filing claims due to the absence of any agreement over the relief fund. Continuing claims remain stubbornly high at around fifteen million.

Trump’s Chief Economic Advisor Larry Kudlow has had a busy week. Yesterday, he was bigging up the recovery of the economy.

He predicted that unemployment would fall below 10% in August although he was not keen to make a more exact prediction. He also sees Q3 growth in excess of 20% as the recovery starts in earnest.

Retail sales data will be released later today. It is expected that last month’s 7.5% increase cannot come close to being matched and a read of around 1.5% is expected. This doesn’t really gel with quarterly growth of 20% but at least it is positive.

The dollar is trapped in a summer lull or a period of indecision depending on who you ask. Either way, it remains in a fairly narrow channel, trading between 93.42 and 92.92 yesterday, closing at 93.24

Solid top limits progress.

It would be a significant achievement if the single currency were to break above the 1.20 level versus this period of relative strength as the market remains unconvinced about both the recovery from Coronavirus and the authority’s ability to provide greater stimulus.

It is possible to make the argument that the euro is simply a mirror image of the dollar currently, given its significant part in the makeup of the index itself.

The shambolic negotiations over the relief package which did very little for the reputations of France and Germany as arbiters of common sense and unity within the EU should have been a catalyst for a fall but still the euro trades close to levels not seen in two years.

Despite the lack of liquidity brought about by the August lull, it is becoming obvious that those with a natural requirement to buy euros, are waiting for a more appropriate level at which to hedge their exposure.

While the holiday season is now in full swing, it seems that the beaches of southern Europe are being avoided by Northerners. One of the major tour operators has seen bookings from Germany, Belgium and The Netherlands collapse as discretion becomes the better part of valour.

Today sees the release of a further preliminary read on Q2 GDP for the entire region. It is expected that the previously released 12.1% contraction will be confirmed.

The euro traded between 1.1864 and 1.1780 yesterday, closing at 1.1813.