Bailey’s quip coming true

Last week, Bank of England Governor Andrew Bailey jokingly compare the troubles facing the economy with the biblical plague of locusts.

As the week wore on, his comment became more prophetic as traders and investors dumped their holdings in Sterling, driving it to new year’s lows versus both the dollar and euro.

Johnson’s Chancellor will be speaking at the Conservative Party Conference, which begins later today in Manchester. It is expected that he will announce a £500 million fund to support the jobs market.

Sunak is expected to say that the Government plans to begin to reshape the economy following the Pandemic, utilizing the country’s strengths in technology and innovation.

This will be confirmation that the days of the UK’s manufacturing and heavy industry background is at an end as the post-Brexit period begins.

There are growing concerns that a harsh winter could lead to the NHS coming under pressure again. Despite the coronavirus vaccination programme lowering considerable hospital admissions and fatalities, the number of infections is still high and if there is a serious winter flu outbreak hospitals may struggle to cope again.

The fuel delivery crisis has become fairly localized. The north-east of the country appears to be relatively back to normal, while in the south-east, army drivers are going to be deployed in Johnson’s words, as a precautionary measure.

In his interview, Johnson went on to say that he doesn’t favour a temporary relaxation of immigration regulations to help solve the problem of HGV drivers since he doesn’t want the country to return to being a low skills low pay economy.

While the Party Conference will, in the main, support its leader, the lack of talent among his Cabinet may well bring criticism.

The pound reached a low of 1.3411 versus the dollar and 1.1549 against the single currency. It closed at 1.3546, while it closed the week marginally higher versus the euro at 1.1682.

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Regional Fed President’s resignations not for rule breaches

In a revelation that is almost too hard to believe, two Regional Fed. Presidents resigned, or to quote the official press release, brought forward their retirements, following accusations that had been dealing in individual stocks, the price of which are not only directly affected by the actions of the Central Bank but, that the two actually had a role in formulating.

This is made even more startling by the fact that the two didn’t break any rule, since they are expected to behave in an honourable and judicious manner.

Eric Rosengren, President of the Boston Fed, and Dallas Fed President Robert Kaplan will leave office, Kaplan to avoid becoming a distraction and Rosengren for health reasons.

Fed Chairman Jerome Powell has come under fire from Democrat Senator Margaret Warren, citing his lack of oversight of the financial markets as a reason for his renomination to be withdrawn.

While this may be little more than political posturing from the Democrat Party’s left wing, the fact that such an issue has emerged will force Powell to close the loophole and tighten what is clearly a rule planted in the past.

The Federal Reserve is rushing towards a decision on when the withdrawal of monetary support will take place. This week’s employment report for September will be a major, but not the only, contributory factor in the decision.

Neel Kashkari, the President of the Minnesota Fed, commented last week that he is comfortable that the conditions for a taper of support have been met. He will support any vote to begin to lower the level of asset purchases.

This is a significant statement, since Kashkari is considered to be at the dovish end of the Fed spectrum.

On Friday, The Fed’s favoured measure of inflation, Personal Consumption Expenditures, was released. The rate of growth increased from 4.2% to 4.3% year-on-year.

While Powell continues to decry inflation as a reason to be tightening policy, the market treats such comments as bogus.

This week’s data releases are dominated by the Employment report due for release on Friday. It is possible that the August number could be revised higher, while the September headline is currently predicted to be around 500k new jobs.

The dollar index gained from the fall in the pound and its knock-on effect on the euro last week. It reached a high of 94.50, closing at 94.07.

The ECB could be about to overstretch again

In what is considered to be a conservative institution, it is often difficult to align the ECB’s dovish policies with some of its ambitions.

Six months ago, the very existence of the Eurozone was being questioned given the parlous state of the economy and the fact that the distribution of the Coronavirus vaccine highlighted cracks in the fabric of the Union.

Now, since the economy has begun to recover and despite the fact that some significant decisions on debt to GDP ratios and budget restraint need to be made, stories are emerging that the Eurozone sees its currency as a strong candidate to replace the dollar as the global reserve currency.

There are several reasons why such a thought should be very, very far from the mind of anyone.

The currency has been in place for a little under 25 years and has proven to be unstable in the extreme. The EU doesn’t exist as a single nation, and the level of pressure exerted by individual members is way too high. Furthermore, although it is only whispered very quietly, Russian involvement in the wholesale price of gas shows how the entire Union can be held to ransom.

If anything, the EU’s case is weaker now than it has been for some time. The collapse of Lehman Brothers in 2008 was possibly the dollar’s nadir, but since then, it has performed adequately, despite the fact that there will always be naysayers who wish to see the dollar toppled.

At a less elevated level, the rally in the economic fortunes of the region has been impressive. Last week, economic sentiment rose unexpectedly. This is a combination of consumer and business confidence and is considered one of the more significant leading indicators.

There are Eurogroup and Ecofin meetings being held this week, but it is unlikely that there will be any significant revelations.

The euro continues to plumb the depths of this year’s range. Last week, it fell to a low of 1.1562, closing at 1.1596