Johnson still sees no basis to resume Brexit talks

The Chief Negotiators from both London and Brussels held a phone conversation yesterday afternoon, but the outcome appeared to change nothing as far as the UK is concerned.

Prime Minister Boris Johnson repeated his assertion that without a significant change of heart from Brussels there is no basis for talks to resume.

The call between the negotiators was said to have been constructive but that is simply political speak for no progress.

Meanwhile, the UK prepares for an Australia style departure which means it will begin its new independent life without a trade deal with its biggest partner.

Fisheries will be protected, but they account for just 0.1% of UK GDP, while the tariffs that could be placed upon industries as diverse as farming and auto parts could bring major difficulties.

The import of basic components from Turkey, which is outside the EU, could see the parts that are then manufactured in the UK see a 10% tariff. Farmers could fare even worse. Their biggest market could see up to 100% tariffs added which would be a disaster.

Despite voting to leave the EU more than four years ago, the UK is extraordinarily unprepared for next January and is now scrambling to make sure that UK businesses are able to confirm with new rules and regulations.

The standoff over the placing of Greater Manchester into Tier Three of the new Coronavirus regulations rumbles on. With little progress seen since the weekend. The devolved Welsh Government has decided to insert a fire break which means for two and a half weeks from Friday, the country will be in an almost total lockdown.

The pound didn’t react well to the news that no talks are scheduled between London and Brussels but there are still pockets of belief that there will be an 11th hour deal and the two sides will see sense.

For the EU, that could see President Macron thrown under the bus, while London would have to accept EU statutes over business support. It remains to be seen where the story next surfaces.

Sterling fell to a low of 1.2894 versus the dollar having traded well above 1.30 before the news of no progress broke. It closed at 1.2941. Versus the single currency, the pound has been gyrating around 1.10. Yesterday, it fell to a low of 1.0991, closing at 1.0999.

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Uneven recovery to require regional help

Nancy Pelosi, the Speaker of the House of Representatives gave the White House an ultimatum last evening; if a deal on a Stimulus Bill is not agreed by tonight then no further negotiations will take place before the New Year. Of course, were the Administration to make Ms. Pelosi an offer she couldn’t refuse, then talks would begin again immediately.

Earlier in the day, it had been thought that some progress had been made with Fed Officials making promising noises. In the end the standoff remains and those who have lost their jobs over the Pandemic continue to suffer.

The Federal Reserve itself appears to remain fascinated by the prospects for future inflation. While this is something of an academic exercise in the current environment, it remains a concern since the level of stimulus injected into the economy by the purchasing of bonds is unprecedented and should (theoretically) stoke much higher inflation.

Philadelphia Fed President Patrick Harker commented yesterday that the lowest paid workers were beginning to see their situation improve just before the Pandemic hit and they are the ones who are suffering most economically.

He went on to say that the longer monetary policy can remain exceptionally accommodative the quicker the economy can recover irrespective of the trajectory in inflation. He believes that full employment (measured by an unemployment rate below 5%) should be achieved before any tightening takes place.

There was further comment from Atlanta Fed President Raphael Bostic who sees the labour market lagging without support, and it may take until the end of next year before pre-pandemic levels return.

The dollar index started the week poorly. It fell to a low of 93.20 but again bounced to close at 93.41.

Activity indices to bring concern over slowing recovery

There are growing concerns that activity in the Eurozone is, if not grinding to a halt, then certainly slowing considerably.

In typical fashion no one at the ECB accepts anecdotal evidence. They want to see the data as represented by the latest estimates of services and manufacturing output to prove what is fairly clear to most retailers and consumers.

The data will be released on Friday but will be preceded by consumer confidence on Thursday. That is expected to have fallen from -13.9 in September. to -15 or even -16 in October. This is the preliminary flash estimate but is rarely far from the confirmed data.

Activity indices are likely to remain close to the 50 level which separates expansion from contraction. One major concern is that services output is failing to pick up and is likely to remain in contraction as is the composite data for both manufacturing and services output combined.

With the infection rate beginning to again rise close to being out of control, several nations are again reporting record numbers. In Ireland 25% of all cases reported since March have been in the past two weeks.

France and Spain have been the major hotspots, but Italy and Germany are beginning to see rates rise.

Although Q3 GDP is certain to show growth over Q2, due mostly to pent up demand from the first lockdown, concerns are growing that there could be a double-dip recession depending on what happens in the next two weeks or so.

The euro continues to flirt with the 1.18 level versus the dollar. Yesterday, it rose to a high of 1.1791, closing at 1.1772.