Retail sales key to recovery

Bank of England Chief Economist Andrew Haldane has been one the most optimistic members of the Bank’s Monetary Policy Committee as the economy has begun to rally following the largest contraction in history in the second quarter of the year.

Haldane reiterated on Friday that he sees almost 50% of the contraction having been recovered already and he puts this down to strong consumer activity.

Online sales have been the most significant contributors while High Streets remained shuttered. Now, as traditional retailers return to the game, online retailers continue to see strong growth. Haldane believes that the combination of the two is providing the economy with the support it needs to return to the levels seen last December sooner that the markets had expected.

Prime Minister Boris Johnson was a little more circumspect in interviews over the weekend, where he said that it could take up to three years for the country to recover fully. Johnson is likely taking every aspect of activity into account while Haldane concentrates on the economy.

Last week, the pound continually tested the low at 1.30 versus the dollar but managed to remain above it. Any notion of climbing through resistance centred around 1.3180 may depend on this week’s PMI data which will be released on Friday.

Both manufacturing and services are expected to post strong data well above the 50 level which divides growth and contraction.

Retail sales data will also be released on Friday. These are expected to rise by 2% month on month, following June’s stellar 13%+ rally.

The pound reached a high of 1.3142 and closed at 1.3086.

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FOMC minutes to signal Fed thinking

The dollar index remains under pressure as the market continues to defer to the side of caution over the ability of the economy to recover at grass roots level.

The continued standoff between the White House and Congress over support for those unemployed who have been affected by the Pandemic continues as the President remains determined to couple the support Bill with a number of other issues.

One of the main topics on President Trump’s mind are his concerns over postal voting in the election which is now just three months away.

It is now certain that the country will still be in the grip of Coronavirus when the election takes place and the feeling is that a low turnout and/or a predominance of absentee voting will favour Democrat Candidate Joe Biden and his freshly appointed running mate, Kamala Harris.

Trump has wasted no time in attacking Harris. Careful to choose his words wisely, he said that he had heard that Harris may not actually be qualified to run since she is a first-generation immigrant. This is a rehash of a matter that has already been dealt with in Ms. Harris’s favour and is merely the start of Presidential mischief making.

Jobless claims data released last week was mixed at best. While new claims fell below a million for the first time since lockdown, continuing claims are starting to paint a picture of an economy that is failing to recover at the expected rate.

Among this week’s data will be the release of the minutes of the most recent FOMC meeting. While analysts will pore over the detail, the main theme has already been provided several times by Chairman Jerome Powell; the Fed stands ready to do whatever is necessary to ensure that the recovery continues.

Last week the dollar index was under pressure, reaching a low of 92.92 and closing at 93.09.

Job losses a national issue given fiscal independence

The ability of the EU to aid on a national level may be one of the biggest impediments to an overall recovery from the Pandemic.

Schemes to assist those whose jobs have disappeared due to Covid-19 already exist in most G7 economies but the lack of an overall fiscal union is again hampering the region.

With further integration key to future defence against most issues that could come up, the markets will be expecting some form of plan to be formulated going forward.

The issue of the haves and have nots will continue to dog the Union and the rise of the frugal five will continue, since there is no way to effectively control spending of the more profligate nations as the growth and stability pact now appears effectively dead in the water.

While some members are able to support the economic victims of the crisis, others will have to rely on funds filtering down to them from the recently agreed Pandemic Relief Fund. This is both slow and unwieldy and delays support getting to where it is needed fast.

The euro remains on the front foot mostly due to the weakness of the dollar as data released recently has been decidedly mixed.

The single currency appears capped close to resistance at 1.19 although the single currency completed eight weeks of continuous improvement last week. It reached a high of 1.1864, closing at 1.1842.