Peak not yet seen despite drop in cases

The Governor of the Bank of England Andrew Bailey followed his Chief Economist Andy Haldane in predicting a robust recovery in the UK economy once the vaccination programme begins to take hold.

Both Bailey and Haldane’s opinions differ from those of the financial markets where analysts see the recovery taking longer than expected and the recession lasting into at least the third quarter.

There are differing opinions too about when the recovery will begin. It is highly likely now that the country will spend the entire first quarter in recession. That means, depending on how quickly activity can grow, the second quarter will begin in recession.

Brexit continues to fly under the radar with yesterday’s report that 20% of small and medium businesses are now avoiding selling in the EU due to uncertainties over delivery. Not generally reported this particularly applies to perishable goods.

At some point, sooner rather than later, the Prime Minister is going to have to face up to the problems that are evolving and stop brushing them off as merely teething troubles.

There is a stark contrast between the UK’s record on controlling infections and fatalities, where it is close to being the worst globally and vaccinations where it leads the way.

The Government is clinging on to its overpromised hopes of vaccinating all vulnerable groups while worrying about underachieving as vaccine supplies apparently become suddenly scarce.

Home secretary Priti Patel has suddenly become the Government’s truth teller; first admitting that the borders should have been closed more quickly last March, then agreeing that a shortage of doses may see the target of mid-February missed.

The pound remains undecided on its next move. Yesterday, it traded rapidly up to 1.3718 then subsided just as quickly to close close to its opening value at 1.3643.

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Powell sees no tightening of policy no matter price pressures

Jerome Powell, the Chairman of the Federal Reserve, is unequivocal in his determination to support the economy through further stimulus should that be necessary.

He sees rising inflation as a consequence of his actions but believes that to be a necessary evil given the current state of the economy. He said in a recent interview that interest rates will not be rising any time soon.

Next week’s meeting of the FOMC may not add to the level of bond purchases but it stands ready to do so should the need arise since recent comments from FOMC members support Powell’s ideas.

Under the Trump Administration, Treasury Secretary Mnuchin and Powell appeared to often be at odds over support for the economy and those individuals and businesses affected by the Pandemic.

While Powell and incoming Treasury Secretary Janet Yellen are not quite in lockstep, there is sure to be a greater degree of agreement given their shared goal.

Yesterday, the new President’s inauguration was clearly seen as a means to an end by President Biden. In his address to the nation, Biden spoke of ending this uncivil war that has broken out and pledging to serve those who didn’t vote for him with as much passion as those who did.

He vowed to end political infighting, far easier as both Houses are now Democrat controlled, and listen to the country, using discourse over bullying.

Following the ceremony he got to work on clearing away several barriers and divisive policies that had been enacted over the past four years.

The dollar index was barely changed on the day with investors more interested in seeing how the entire new administration begins to tackle the pressing issues, in particular employment.

While many of the orders Biden issued were symbolic of his desire to be more inclusive the more practical matters are yet to be tackled.

The index traded between 90.69 and 90.27, closing just two pips lower at 90.47.

Euro’s global dominance plan in severe jeopardy

In the pre-Eurozone days, the Bundesbank on which the ECB was modelled in both style and bureaucratic input, appeared to have just one policy. That was to control the almost paranoid fear of inflation across the nation.

That ideal has generally served the Eurozone well over the past twenty years or so, but now that a more expansive set of policies is needed the Central has been found wanting.

The Bundesbank always promoted a strong Deutschemark, relying on the efficiencies of the country’s industrial and manufacturing might to offset the stronger currency’s effect on competitiveness.

While the U.S Treasury through President Trump may have criticised the Eurozone for artificially weakening its currency to the detriment of U.S. exports, the truth is vastly different.

With the Eurozone suffering from deflation that has lasted several months and could be here to stay for some time, the relative strength being exhibited by the single currency is having an effect on prices and contributing to the current situation.

A year ago, the dollar index which is 57.6% made up of the euro traded at 102, yesterday, it was mired in around 90.50, clear evidence of a year where not only coronavirus but the effect of currency strength has had an effect both on exports and the wider economy.

While Germany can rely on several other factors to keep industry afloat as already mentioned, inflicting that kind of pressure on the other, weaker, members of the Union, is tantamount to asking them to swim with a ton weight around their necks.

It will be interesting to see the effect on the currency of the incoming U.S. administration since the concerns over the effect on competitiveness of a 10%+ rise in the currency appears lost on the ECB.

Today’s ECB meeting is likely as mentioned yesterday to be more of the same, with the Central bank playing a waiting game, hoping for inspiration from the EU Commission.

The single currency weakened a little yesterday versus the dollar and Sterling. Against the dollar, it fell to a low of 1.2076, closing at 1.2107, while versus the pound, it fell to a low of 1.1315, closing at 1.1280.