A fudge or genuine compromise?

It is expected that the UK and EU will announce this morning that a trade deal has been completed. Until the details of the agreement are made public it will be impossible to say whether it is a genuine deal with real compromises made by both sides or a fudge that goes some way to satisfying both side’s needs.

Either way, it will end a marathon task that has been played out sometimes in public through the media and sometimes cloaked in silence and mystery.

That good news for the economy will be tempered by an announcement from the Government that its three-tier system, while coping well with bringing the original strain of Covid-19 under control is insufficient to deal with its mutation.

Therefore, Health Minister Nick Hancock has announced that another section of the South East of the country together with areas to the West will be placed in Tier Four on Boxing Day.

It is unknown how long these additional restrictions will remain in place and there is continuing speculation that, depending on the data, the entire country may be placed in Tier Four, basically a complete lockdown, either next week or early in the New Year.

The pound has reacted positively to the Brexit news while traders accept that things will be tough but with a vaccine coming on stream that should alleviate the issue over time, Brexit is seen as an overwhelming positive.

Yesterday it rallied to a high o1.3563, closing at 1.3549. It may be that, given the market will be closed until next Tuesday, that the steam may be taken out or the rally and a sell the fact correction could be seen.

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Restrictions may see jobless improvement fade

A pre-Christmas boost in the shape of improving weekly jobless claims has given the economy something of a lift allaying fears that unemployment is set to derail the new support package before it is even delivered.

With a new strain of Covid-19 arriving it is unclear what new measures will be taken to protect the population. The likelihood is that it will be done at State level since the outgoing Administration is showing something akin to indifference towards new measures.

President-elect Joe Biden in an address yesterday criticized the new support bill saying it won’t save the country or its economy. He said that it is full of wasteful items delivered by Republicans to simply satisfy Democrat demands that a Bill be delivered before the Holidays.

It is possible that negotiations over a further package of measures will begin almost immediately. Biden went on to say that the Bill is entitled The Covid Relief Bill but has virtually nothing to do with Covid.

President Trump has also been critical of the one off $600 payment which is being given to a large but targeted group. He said that the payment should be $2,000 and less targeted to allow those still in work and even those earning six figure salaries to join in the support for the economy.

With it unlikely that the U.S. will escape the spread of the mutant strain discovered recently in the UK and the second one originating in South Africa, Biden faces a chastening first one hundred days in office where he will struggle to make his mark while continually putting out fires.

The dollar index remains in a 90/91 range for now and is unlikely, short term, to provide too much evidence of its path for the New Year. The incoming Treasury Secretary Janet Yellen is apparently keen on returning to the strong dollar policy abandoned by the Trump Administration and if that happens it will be interesting to see how the Treasury and Fed go about achieving it.

Another recession unavoidable

The barricading of the EU’s land sea and air borders with the UK is unlikely to have the effect of restraining the spread of the new strain of Covid-19 given both its virulence and the fact that it is already being seen in one or two countries of the Union.

The chaos that was seen at the channel ports, Dover in particular, over the past few days is now easing but it is a warning going forward of the way the EU and a few of its members view the UK and the agreement that is likely to be delivered this morning.

Fishing quotas were the final piece of the Brexit trade jigsaw and it remains to be seen how France and its fishermen will react to what has been agreed.

It is likely that President Macron has been kept informed of what has been discussed but the degree of mistrust, mostly due to Macron’s EU ambitions, between the fishermen and the Government could see demonstrations on land and sea.

A loosening of lockdown restrictions across the EU, saw output and economic activity perform a brief spike but the new measures and the logistical difficulties of distributing the vaccine will see that candle of hope snuffed out.

Brussels is still considering the distribution of the vaccine and each member of the EU is looking at making its own arrangements.

It is a feature of the EU that it has not created mechanisms for dealing with such crises and remains essentially a free trade area designed to protect its members and remains well short of any global ambition.

Yesterday the euro fell versus the pound as trade negotiations appear to be concluding. It reached a low of 1.1109, closing at 1.1075. Versus the dollar, it traded in its recent range, making a high of 1.2221, closing at 1.2195.