Rising growth expectations could fall foul of Brexit

The next stage of the lifting of restrictions will take place in just two weeks as the UK closes in on the complete lifting of lockdown.

While that will be a cause for celebration, industry, business, and hospitality will have to learn to operate with a lessening degree of support. The full reopening will happen without several High Street staples as shops that were unable to access funding have closed.

As the end of one of the most painful periods in modern history ends, the Government will need to make sure the recovery is self-sustaining before it withdraws completely.

It remains to be seen how successful the total reopening of the economy will be while fears remain that opening the border in any meaningful way could see vaccination-proof variants of Covid-19 arrive.

There are still several loose ends to be tied up as far as Brexit is concerned.

While the Pandemic has allowed both Westminster and Brussels to dance around the issue, real issues remain to be finalized with the EU in no mood to be accommodating following the row over vaccines.

Job adverts have returned to pre-Pandemic levels, but concerns remain that the 800k fall in the number of people in paid employment will take a significant time to recover.

Preparations for the reopening of indoor hospitality are driving a high level of demand but there will be a similar number of names missing when the complete reopening takes place.

The financial markets have had a slow start to the week following yesterday’s Mayday holiday which this year coincided with Orthodox Easter.

At the end of last week, the dollar staged something of a recovery, but that has faded and yesterday, the pound recovered most of Friday’s losses, closing at 1.3909.

The meeting of the Bank of England’s Monetary Policy Committee will be the highlight of the week, despite the fact that they are almost certain to leave both interest rates and bond purchases unchanged.

The comments following the decision from Governor Bailey may give some clue to the Bank’s expectations for the economy going forward and could see a positive change to its expectations for full year GDP.

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Can the FOMC avoid inflation question much longer?

The monthly jamboree that has launched a thousand lotteries will take place later this week.

Having risen dramatically over the past couple of months the headline non-farm payrolls for April could touch a million. While that remains unlikely and could turn out to be far lower should the March data be revised significantly, the market will expect some reaction from the Fed.

Chairman Jerome Powell has the market’s confidence given the way the Pandemic and subsequent recovery have been handled but, he is beginning to take their patience for granted as inflation rises with no comment about how it will be managed.

Acknowledging that inflation will be well above the Bank’s target for more than a year with no explanation about how it will be managed is beginning to look like there is no plan other than to let it fall naturally as some kind of equilibrium returns.

The manufacturing sector saw a far slower increase in activity in April than markets had expected. This has been attributed to bottlenecks that have formed in supply chains with factories all reopening at the same time and making similar demands on logistics services.

The ISM noted that companies and suppliers are struggling to meet demand due to the virus limiting availability of parts and materials.

With the recovery now in full swing and inflation expectations growing, the issue of supply may provide a brake on demand that could be seen as helpful against overheating.

The dollar index saw a significant rally as it fell towards the 90.40 level last week. It rallied to close the week at 91.32 but ran out of steam yesterday and fell back to close at 90.97.

Factories fuel export boom

Exports have been the lifeblood of the European Union since it took its first steps towards a Federal future.

It now seems that the quality of product emanating from the Union may be the factor that saves the economy going forward.

While other nations either exported their manufacturing capability or close down in favour of services output, many regions of the EU continue to fill the quality gap.

This is particularly true of the automotive sector where both finished vehicles and the incredibly lucrative parts market are thriving.

This upturn is adding to confidence that despite the economy falling into a double dip recession in the first quarter, it can recover and see positive growth this year.

The situation regarding the vaccination rollout appears to be improving almost daily and a few members of the Union are considering reopening borders to those who have had both doses.

The level of bond purchases has levelled out at around 20 billion per week as Governments begin to restrain new issuance given the significant rises in recent weeks/months.

The latest ECB meeting confirmed that there will be no consideration of the end of stimulus for some time.

It is likely that the frugal five try to raise the subject at every meeting but so far, any move has been resisted.

The level of confidence being seen by both manufacturing and consumer sectors is spilling over into a belief that the entire summer will not be lost to the Pandemic. Several schemes are being worked on, but caution remains the watchword given the distance that still has to be travelled to full immunisation.

The euro rallied yesterday after a weak end to last week. It rose to a high of 1.2076. The next few days may see further rallies, but a lot depends on the NFP data to be released on Friday in the U.S.