Government will need the flexibility Brexit brings

The UK Government has rejected calls from the IMF for Brexit negotiations to be extended given the clearing up operation that will overshadow everything else for the rest of the year.

Despite talks only resuming this week, the UK believes that getting Brexit done, is a singularly important step in the recovery of the country’s economy from the Covid-19 pandemic.

The fact that the UK economy is 80% services-based means, in theory, that it should be able to recover more quickly than industrial and manufacturing based economies. However, so far, China’s response to the gradual return of activity proves that theory wrong as its exports fell far less than had been expected in March.

At yesterday’s press briefing, the constant questions about the Governments exit strategy continued. It has been likened to asking Churchill during the Dunkirk retreat when he thought D-Day would be!

The announcement that the UK lockdown would last at least three more weeks contrasts with several other nations. Switzerland and Germany have started opening up small shops etc while in Sweden the country is virtually fully open.

Obviously, the longer the lockdown goes on the worse it will be for the economy when it returns but the government’s view remains one week too many is infinitely better than one week too few.

As the market came to terms with a lockdown lasting well into May, the pound suffered. It fell to a low of 1.2408 versus the dollar and closed at 1.2451

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22 million claims in four weeks

Pre Covid-19, the lure of employment data in the U.S. was starting to fade as trade data started to make a comeback due to the everlasting tensions between the U.S. and China.

However, the effect on the economy of 22 million people filing jobless claims in four weeks has certainly grabbed the market’s attention back.

Towards the end of last week, traders were beginning to give a certain amount of credence to President Trumps’ assurances that the economy would be up and running sooner rather than later and that gave a boost to risk appetite, particularly since there were signs of other nations starting to see infections and fatalities plateau and even start to fall.

The continued concerns that globally the infection rates may be stabilizing but deaths remain on the increase, together with today’s continued staggeringly bad jobless claims data meant that the U,S and global economies were far from ready to return to anything approaching full capacity.

The four week average of jobless claims is at a little over 5.5million and that is unlikely to fall over the next two or possibly three weeks as the full effect of the lockdown bites, even if the country does tentatively return to work on May1st.

Data for the construction sector was another factor that showed how the economy is already suffering. Housing starts fell to 1.2 million from 1.5 million in February, while building permit applications also fell by close to 100k

While the economy continues to shed jobs, the dollar will remain well supported. Yesterday the dollar index rose to a high of 100.30, closing at 100.06

Merkel and von der Leyen cooking up a plan

Ursula von der Leyen, the President of the European Commission admitted yesterday that the EU left Italy to agonise alone for far too long as the north of the country suffered as the European epicentre of the disease.

She attended a video conference with G7 Heads of Government at which the discussion over a concerted response to the coming global recession was overshadowed by almost universal condemnation of President Trump’s decision to halt funding of the World Health Organization. He cited mismanagement but there have been plenty of reporters saying maybe should look a little closer to home.

Germany is rolling out a plan to deal with the economic aftermath. It entails a gradual opening of businesses from May 4th, while France will partially reopen on May11th.

French President, Emmanuel Macron warned yesterday of an unravelling of the EU as a political project if it fails to support stricken nations like Italy.

It seems that the EU is fated to remain forever is a kind of halfway house, too invested to collapse completely yet too nationalist overall to take the final step to complete union.

Macron believes that the region has no choice but to set up a fund that will issue common debt with a common guarantee. It seems that among others, Germany and The Netherlands will not ever support this measure since they are constitutionally prohibited from doing.

He went on to say that the Union is facing a moment of truth where it must decide exactly what its future is. Does it wish to remain simply a single market, with a lack of will to show greater solidarity in such uncertain times.

Yesterday, the euro was again driven by the dollar’s strength. It fell to a low of 1.0165, closing at 1.0839