Revolt as Manchester refuses to accept move to Tier 3

There was a sense of deja-vu yesterday as an EU Summit began in Brussels with the intention of ratifying an agreement that had been reached between the two parties over Brexit. Since no agreement has been reached it felt a lot like last November was being repeated.

Both sides expressed disappointment over the others failure to compromise. UK Chief Negotiator, David Frost said that he felt that Brussels was no longer serious about finding a solution to the remaining issues. The most likely outcome of what was supposed to be the defining week for Brexit is that talks will continue well into next month.

The Government’s handling of the Coronavirus Pandemic has been criticised ever since Boris Johnson’s Senior Advisor Dominic Cummings appeared to flout rules he had put in place. Most of the criticism was about making political capital and the Prime Minister, by assuring the country that he was taking the advice of the SAGE Committee, managed to weather the storm.

As the second wave has hit, the focus of managing the infection rate appears to have switched from protection of the population to protection of the economy.

There is no doubt that it is well understood that the Government cannot simply continue to pay the wages of those furloughed or being made redundant indefinitely, but the manner in which support is being delivered and the reasons that there is a preference for regional lockdowns over a circuit breaker is open to question. The ignoring of scientific advice is a significant pointer to the Government’s thinking

Chancellor Rishi Sunak announced that those regions of the country that are in Tier Three of the restrictions would be supported with 66% of salaries being paid. When that measure was announced it was generally accepted, then when only one region was placed in the highest tier, the questions over motive began.

Manchester has now openly refused to be placed in Tier Three. While it cannot lawfully refuse and the Government is able to impose restrictions irrespective, the move has gained the publicity it was designed to attract.

The negative connotations of both the Pandemic and Brexit for the economy drove the pound lower yesterday. It fell again to low of 1.2890 and closed at 1.2903.

With the possibility of a full lockdown at a highly sensitive period of the year both socially and economically growing, Q4 GDP growth is under threat with ongoing consequences for confidence in the currency.

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Dithering and avoidance dominate Town Hall questioning

The Town Hall meeting that was held last evening to allow the two Presidential Candidates to answer questions, which replaced the cancelled Presidential Debate, saw both Candidates fail to gain any traction.

President Trump, at the least Presidential he has been for some time clearly avoided answering sensitive questions about his own infection with Codid-19. When asked whether he had taken a test on September 29, the day of the first debate, Trump answered maybe I did and maybe I didn’t. This harmed the credibility of his answers for the rest of the proceedings.

Furthermore, when asked about the stimulus package, he immediately placed the blame at the door of Nancy Pelosi.

Biden fared no better appearing to dither and stumbling over numbers, particularly when questioned over the rolling back of Trump’s tax cuts for the more wealthy.

Unemployment is showing further evidence of plateauing. Despite a strong fall in continuing claims which fell from 11,180k to 10,018k, new claims rose to close to 900k.

The proposals for a renewal of the Pandemic Relief Bill have now become a political football bouncing back and forth between the Administration and Congress.

Regional Fed Governors continue to poke the lawmakers for a deal.

Minneapolis Fed President Neel Kashkari made one such call for a deal to be done. He commented that without one, impetus will be lost and it will turn into a long, slow grinding recovery.

Commenting on how much longer it is going to take, Pelosi said that it cannot wait until January without mentioning how she plans to quicken proceedings. This was in response to the Treasury Secretary’s comment that the window for an agreement is all but closed.

The dollar index continues to trade in a range with offers on approach to 94.00 and solid bids below 93.00. Yesterday, it traded up to a high of 93.91, closing at 91.80.

ECB unable to drive recovery other than to provide funds

It is beginning to sound like the continuing theme of the Eurozone response to the Pandemic but the lack of a focal point for the entire stimulus process is seeing any unified action disintegrate.

The infection rate is beginning to grow at an alarming rate and it may not politically correct to say so, but with Germany recording a record level of infections yesterday, the powerhouse of the region may be forced to enter the fray on tackling the second wave.

Olli Rehn, the Governor of the Finnish Central Bank, and a strong candidate to replace Mario Draghi before political expediency took over, commented yesterday on the prospects for the recovery of the region.

While his words were interesting, particularly around the contraction in GDP this year which he put at 8%. He sees 5% growth YoY next year and 3% the year after. He made no mention of the second wave or its expected effect.

He also appeared to refer to the ECB as the only institution working towards the recovery from a financial or economic perspective.

In Japan, the U.S. and UK there is a centralized approach where the Central Bank, as well as having input into the process, is reactive to the actions taken by the Government. No such core decision making is being seen in Europe and this is likely to hamper the recovery.

The outcome of the EU Summit that is taking place today and will go on to talk about the Pandemic once they defer judgement over Brexit, is unlikely to find any fresh initiative. In fact, anything other than a wait and see approach would be a significant surprise propelling the euro much higher.

Yesterday, the single currency continued to correct lower. It fell to 1.1688, closing at 1.1708 versus the dollar as traders remain unimpressed with the growing infection rate and its effect on the economy as a whole.