Pandemic far from over despite growing confidence

As the UK heads towards the end of its third lockdown, 41% of small and medium-sized businesses confirmed in a survey published this week that their cash position had weakened significantly during the first quarter. This situation is far worse in the tourism and hospitality sectors where the figure is closer to 80%

While this is a fairly obvious conclusion given the fact that the country was closed for the entire period, it serves as a reminder of the true situation facing the economy in the medium term.

Headline grabbing vaccination data and the support being given by both the Treasury and bank of England hide what remains a precarious situation and underlines the discussion that is taking place regarding the need for a further cut in interest rates later in the year.

For now, the Government is promoting the feelgood factor generated by the success of the vaccination programme while warning that the third wave sweeping through Europe currently illustrates that the country isn’t out of the woods just yet.

The survey, by the British Chambers of Commerce, reported that 55% of those firms see an improvement in their finances over the next twelve months. This improvement was most prevalent in media and other services sectors.

Q1 is likely to be the low point for activity and business confidence is beginning to show signs of climbing exponentially.

As firms spent the first two lockdowns busily protecting their assets with many being forced to mothball their operations, the period since the turn of the year, as the vaccination programme has improved business confidence, has seen investment begin to take hold.

The most significant takeaway for SMEs from this survey is that leading indicators for the economy are beginning to show growth but the Government’s message regarding the reopening of the economy must be heeded.

The pound continues to gain support from the roadmap out of lockdown. It rallied yesterday versus the dollar to a high of 1.3812, closing at 1.3782, The dollar paused in its recent rally as traders took stock of their positions ahead of tomorrow’s eagerly awaited employment report for March.

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Private sector jobs disappoint

President Biden defied those spreading rumours that he was hiding away in a speech yesterday in which he outlined the first step in reshaping the U.S, economy.

He highlighted a move away from big business that was the hallmark of the previous administration and confirmed what had until then been speculation about Federal investment in infrastructure.

He announced a further $2.25 trillion in stimulus. There are four sectors where investment will be centred. Transportation ($620 billion), Improvements to social care ($650 billion), investment in manufacturing research and development ($580 billion), and help for the elderly ($400 billion)

This was a programme that was in the works, almost as soon as Biden was re-elected and differs from the $1.9 in stimulus delivered recently which was solely to combat the worst effects of the Pandemic.

In a truly Democrat move Biden confirmed that the programme would be funded by tax increases. Speculation is growing that the rate of corporate tax will be raised from 21% to 28%.

This is a President with a light hand on the tiller, allowing his Cabinet to implement the policies that he announced during his election campaign.

This change in emphasis will be welcome in Washington since it clears the path on which Congress will travel.

The data for private sector employment was released yesterday. In March, the sector saw 517k new jobs created. This is a stunning gain from February’s 176k. It would be perhaps a little churlish that the actual was just a little below the markets expectation for 550k.

The dollar took something of a breather yesterday with the approaching long weekend and the proximity of the NFP data. Expectations are for a similar increase to that seen in the private sector. The latest estimate is for 600k+ new jobs.

The index fell to a low of 92.98, closing at 93.13.

Infections above level seen at the height of the Pandemic

French President Emmanuel Macron is a man under pressure. Newspapers in France are labelling him as the man who is destined to hand France over to the right.

He trails Nationalist Candidate Marine le Pen in the polls for next year’s Presidential Election and seems to be wracked by issues, being forced to make more and more unpopular decisions.

The latest of those was for a total lockdown of the country for a month as the third wave of the Pandemic ravages the country.

New cases of Coronavirus are now higher than they were at the height of the Pandemic and hospitals are now on the brink of being overrun.

Macron, who is a champion for the cause of a more Federal Europe has reason to cast withering looks towards Brussels as his political future is being jeopardized by the vaccine fiasco which still seems to be hampering delivery of jabs.

The new wave of Coronavirus appears to have different characteristics. In French hospitals 44% of those in intensive care are below 65 years of age.

The lockdown will begin on Saturday and last for at least a month.

A certain amount of domestic travel will be allowed for Easter, but then the lockdown will be total.

Macron swept to power four years ago at the helm of a new youthful Party that promised to wash away the old staid politics that had seen France retreat in both influence and economy.

Now as his plans to be a significant influence over the path to a more united EU are in tatters, his support is fading.

France stands somewhere between the haves and the have nots. The southern states of Italy, Spain, and Greece need a greater degree of support than France, while Macron wishes for France to be one of the more influential nations headed by Germany.

The President is in danger of falling between the two. With his most influential ally, Angela Merkel, about to depart, his dream of a France at the forefront of a new Europe is in disarray.

The euro remains weak as the economy is ravaged by the Pandemic. However, yesterday it gained a little respite. It rose versus the dollar to a high of 1.1759, closing at 1.1730.