Johnson believes more jobs will be created by higher wages

The Prime Minister spoke yesterday of his determination that the UK won’t return to being a low-skilled low wage economy, while his Chancellor speaking at the Conservative Party Conference claimed that the country has become drunk on cheap labour.

Ministers, who have been facing criticism of the policies they have introduced recently, have tried to deflect the blame onto businesses, claiming that they were ill-prepared for Brexit.

That is likely to draw a backlash, given that the apparent transition period was mostly taken up with continued negotiation.

Sunak went on to say that the country simply cannot afford to continue to add to its debt, having reached a critical point whereby it would be unfair to saddle future generations by putting them at a disadvantage.

Brexit Minister David Frost spoke yesterday of his desire for a period of meaningful negotiation with Brussels over the Northern Ireland protocol. The threat of an all-out trade war with Brussels still exists over the way the flow of goods through Northern Ireland, with both London and Brussels threatening to use the veto powers of Article 16.

Brussels has so far not reacted to the UK’s formal demand that part of the treaty be renegotiated, but it is fairly clear that the EU wants to move on and is likely to say that the treaty is now cast in stone.

Boris Johnson’s comment regarding the workforce was in response to the Opposition Leader’s comments that 100k temporary work visas be issued to allow foreign workers to return to take up jobs in various sectors that have suffered since Brexit.

He believes that giving in to pressure now would lead to other areas demanding that they are also made a special case. The current shortage of workers is in transport but allowing jobs to be filled by low paid foreign workers could open the flood gates. The care sector, farming and hospitality have all suffered similarly.

Yesterday, the pound continued to claw back some of last week’s losses. It reached a high of 1.3640, closing at 1.3610. It doesn’t feel like the currency is out of the woods yet, with sellers lining up ahead of resistance around the 1.3667/70 level.

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Powell, the only non-Banker, will have to act

The oversight crisis that has engulfed the Federal Reserve over the past week is not going away, as the Central Bank’s Deputy Chairman has now become embroiled.

President Trump who is clearly not a fan of oversight may have inadvertently produced something of a masterstroke when he appointed Jerome Powell.

Powell is a lawyer not a banker, he will view such dealings as at least immoral and is entitled to expect members of the FOMC to hold themselves to a higher standard.

It would be ironic were Powell to lose his nomination for another four years in charge due to the misdemeanours of his colleagues.

Clarida made a significant change to his investment portfolio the day before the announcement in 2020 that the Fed was considering a change in policy.

The Fed’s guide states quite clearly that the system should not be used for personal gain. It has now become obvious that the wording needs to be both toughened up and more rigorously enforced.

Powell’s chances of being re-elected have slipped from 81% before this crisis hit to around 60% now. He announced yesterday that the Bank will revamp its trading rules, placing more emphasis on oversight.

While this is like locking the stable door, it may assuage or at least redirect the Administration’s anger at the lack of self-control exerted by FOMC members.

It may be that other deals will come to light from those who are better at hiding these trades than their colleagues.

This issue has allowed the market to concentrate on something other than this week’s employment report, which, in keeping with the past three or four, has been described as pivotal. In fact, it has been months, possible years, since the employment report was not described in such terms.

The dollar has calmed down following last week’s burst through resistance levels that had been considered fairly solid.

With both the UK and Eurozone economies being studied for signs of stagflation, the dollar could easily take on further safe haven characteristics going forward.

Yesterday, the dollar index fell back to a low of 93.67, closing at 93.81.

Hard to see how Germany can affect the outcome

Christine Lagarde has shown herself to be a tough negotiator over the past few months. She has taken the advice of her economic advisors concerning what needs to be done to allow support to be used in the correct manner and is determined that it will be given time to work.

Her answer to the more hawkish members of the Governing Council has been for them to put aside national demands and concentrate on the common good.

There has been something of a feel-good factor growing recently, but Lagarde will continue to demand that the Central Bank stays the course and abandons the short-termism that has blighted its recovery from previous crises.

The origin of the current crisis, Coronavirus, levelled the playing field somewhat with every member being affected, although some more than others, and Lagarde is determined that the recovery shouldn’t be affected by the ability of some nations to use reserves to recover far more quickly than others.

This policy will see the market weaned off an expectation that as soon as pre-Pandemic levels of growth are seen that policy will be tightened in order to control inflation and the currency will remain comparatively weak certainly until Q1 of 2022.

Lagarde, or at least her economics team, believes that the Bank should use an old economic theory that policy should not be changed to deal with supply-side shocks.

That goes some way to explain the term transitory when describing the current rise in inflation.

Global risk appetite has been hit by the events in China. The headline is the potential collapse of Evergrande, but plumbing the murkier depths of Chinese activity, both domestic and outside its own borders, is proving difficult.

As long as this mood remains, investors will favour the dollar over the euro and Sterling.

Yesterday, the single currency recovered a little as the dollar took a breather and relented to a bout of profit taking.

The euro rallied to a high of 1.1640, closing at 1.1621.