There is no getting away from the triple dangers

While the pound has several short-term victories, it is becoming clear that longer term investors, hedge funds and strategic traders remain bearish about the longer-term prospects for the currency. Thus, there is little follow through when bullish comments or expectations are made such as those by Bank of England Chief Economist Andrew Haldane yesterday.

Haldane’s view is that the economy is in the middle of a V-shaped recovery from the Covid-19 pandemic and has already recouped half of the fall in activity due to the lockdown.

This is not the consensus view of the MPC where the overall opinion is that they will have a significant amount of extra work to undertake to ensure that there is a recovery of any sort. Haldane’s view was disputed by MPC colleague Sylvia Tenreyro who believes that the economy is stumbling as she used evidence of the smaller than expected 1.8% growth in GDP for May.

Nonetheless, Haldane told MP’s yesterday that he believes that the economy has been growing at about 1% per week since the measures announced by the Government to ease the lockdown have been taking effect.

His comments appear to gloss over the prospect of unemployment climbing to over three million and the growing crisis engulfing High Street retailers typified by yesterday’s announcement that Marks and Spencer are about to shed one thousand middle management roles.

It is becoming a common theme that larger enterprises are studying their management structures to find that they have become top heavy with several planning to remove an entire layer of middle management.

China continues to threaten the UK with the dire consequences of its decision to ditch Huawei equipment from its 5G network. So far, Beijing has lamented that UK consumers won’t benefit from world class tech but will certainly switch to a wider threat as the situation between the two countries worsens.

Brexit remains a negative for the economy which concerns investors and business alike.

Employment, China, and Brexit are the perfect storm that will maintain pressure in the pound as the 1.30 level versus the dollar looks a very long way away.

Yesterday the pound traded between 1.2665 and 1.2518 versus the dollar closing close to the high at 1.2662. While the 1.25 level looks fairly solid for now, any image of Sterling strength is owed to weakness in the dollar.

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Administration angering liberals by ending state aid

Treasury Secretary Steve Mnuchin the, Trump supporting balance to Fed Chairman Jerome Powell’s more Liberal beliefs, has set out the Administration’s view on the continuing necessity for Federal aid to assist those whose jobs have been hit by the lockdown.

The U.S. economy is talking on a two-tone appearance depending on which measures one uses and who one asks.

The tub-thumpers surrounding President Trump like Economic Advisor Larry Kudlow concentrate on big business and the markets while Powell looks beneath the headlines and shows concern for the man in the street who has been surviving on the payment of $600 per week in aid which is about to come to an end. Just what will replace that payment is expected to be announced in the coming days.

There is little doubt that the confused state of the lifting of lockdown restrictions is having an effect on the economy and is a major contributor to the fact that the number of Covid-19 infections is rising along with the death toll.

The whole picture is further confused as the entire pandemic crisis has been politicized as part of the entire election campaign. Even relatively simple commands like wear a mask are being disputed and this means that no matter what, the virus will still be a feature when the election takes place in November.

In fact, it could be a major factor in the outcome of the election, with lawmakers already concerned about a Trump loss leading to the result being challenged if there is an unusually low turnout due to the virus.

With the dollar remaining driven by risk appetite and the economy taking a backseat for now, data may be the factor that sharpens traders’ minds again.

Jobless claims are remaining stubbornly high and with activity data being released on Friday it may be the end of the week before a sense of reality is restored. The inverse reaction to good news is beginning to wear a little thin and traders are prepared to buy dollars again convinced more by Powell’s ability to steady the ship, than Mnuchin or Kudlow’s rhetoric.

Yesterday, the dollar index fell to a low of 95.73, closing at 95.77. While the close below 95.80 is a bearish signal, technical analysis has been shelved as a significant factor for now.

Behind closed doors, a split between loans and grants

In the end, it was all so simple. Why not split the relief package of Eur 750 billion between loans and grants?

To an outsider that makes the agreement that was finally reached yesterday between EU Heads of State a lose lose. While the Frugal four get their wish to make the belief fund a debt obligation for those who use it, those favouring handouts still have to guarantee the borrowings of other states and the EU issues billions of euros of common debt.

Despite the fine details still to be agreed by their Finance Ministers, many to the Heads of State, who paint with a broad brush, hailed their success, unity, and forward thinking. Behind closed doors, the words used may have been slightly different but, in the end, it means that the bloc stumbles on towards the next crisis having found a degree of unity yet sacrificing trust on the altar of expediency.

The market, continuing its short-termism, accepts the deal for what it says on the surface without considering what the first-time issuance of common debt will mean lenger-term

The administration alone will be tough to agree while the legal documentation will take years to complete. However, it is sure that traders will gobble up the paper since in essence it means Italian debt with a German countersignature.

What’s not to love?

The euro reacted positively to the news, but not overly so. There are still those who see no long-term future for the bloc without a more Federal approach. While single crisis driven deals work in the short-term, eventually a situation will arise where no deal will be found, and such an event could have a devastating and possibly terminal effect.

The single currency reached 1.1467 versus the dollar yesterday but again, in keeping with recent days, failed to kick on and closed at 1.1447.