Conservative poll lead slashed

It was a political truism spouted at the time of the last election campaign (which was only a little more than six months ago) that if Labour couldn’t win with Brexit negotiations in such a shambles and accusations that they had been mishandled from day one, then they could never win.

So, here is stage two, if they cannot derive a lead in the polls following the Government’s handling of Covid-19 and Cummngsgate, there is no hope.

Yet a poll in the Sunday newspapers shows that while support for the Government has fallen considerably, they still maintain a lead over Labour. It is hard to imagine what can happen in the next 4½ years that will see their support dwindle further.

Data for Manufacturing output will be released later this morning with market expectations for a very small increase from the 40.6 level seen this month. This should provide the pound with further support as it will be another indication that activity has bottomed out.

With the continued lifting of lockdown restrictions, despite further criticisms of how it has been handled, the economy may be over the worst despite the expectation of terrible Q2 growth figures that have already been almost completely discounted. However, with services output still expected to be extremely weak when the figures are released on Wednesday, this will show just how far the economy has to go before it even reaches the level seen last December.

With construction having been released from lockdown some weeks ago, the rise in output in that sector will be significant in itself, but is only a minor part of overall output.

Last week the pound was a little firmer, based mainly on the performance of the dollar. It rose to a high of 1.2390 and managed to hang on to most of its gains, closing at 1.2342.

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More reliable data due this week.

The U.S. version of the Financial Times reported on Saturday that there have been small indications that the economy is starting to pick up, despite the ramshackle attitude towards the lockdown.

It explained that toilet rolls and disinfectant sales have fallen by 63% and 83% respectively. Beach visits on Memorial Day were up 73% over last year. This may have a lot to do with the weather and the fact that many people having been cooped up during lockdown decided that the time is right for an excursion.

Still, who am I to question the FT?

This week may see a slightly more scientific approach for the market to chew over. Obviously, the star of the show will be the NFP data (more on that below)

First, we will see output data. While this is not considered as important in the U.S. as in the UK and Eurozone, it still has some significance.

Manufacturing output, released this afternoon, is expected to have risen moderately from last month’s 41.5. Still well in contraction but that is hardly a surprise. Non-manufacturing is also expected to have risen. That data is released on Wednesday.

Initial jobless claims are expected to be below two million for the first time since lockdown, which leads us to Friday’s, employment report. The unemployment rate is expected to climb close to 20% as the economy is estimated to have lost around ten million jobs in May.

The dollar index reacted to a small but continued rise in risk global risk appetite last week. It fell to 97.94. It rallied a little on Friday, closing at 98.24.

Is the currency’s trend upwards now?

The Eurozone economy was already knocking on the door of the Intensive-care-unit long before Covid-19 hit. While its effect has been different across the whole Union bit there is little doubt that the Pan-Eurozone issues have been exacerbated by lockdown.

The fracture of any relationship between the European Commission and the ECB has been a constant issue since the 2008 financial crisis when it was first realized that Monetary Union without Fiscal Union is incompatible.

Before 2008, there was no reason to consider Pan-European crises that would hit the entire economy so taxation, social benefits and pensions were not an issue. The nature of the financial crisis changed that, but nothing was done as everyone looked at each other for a lead.

Germany was the most likely country to step up, but as it was already concerned by its original bete noire of rising inflation, expected to be a by-product of Quantitative Easing, it kept is national head down The Juncker/Tusk axis dealt with current issues without concerning themselves with what ifs.

This week, the ECB will meet, and Christine Lagarde will not be looking forward to her press-conference since she may as well simply play a recording of the last one since her hands remain tied.

The details of the Eur750 billion rescue package have not been released yet and there is a degree of scepticism whether they ever will.

Last week week, the single currency managed to break and hold above strong resistance at 1.1020. Since then there has been little follow through which is a little surprising and does not bode well. It managed to reach a high of 1.1145, closing at 1.1090.