No bluster, no threats, just a sensible decision

Chancellor of the Exchequer Rishi Sunak has exhibited a degree of flexibility not usually seen in this Government by agreeing to revisit his latest plans for financial support for those returning to lockdown.

This is a response to the arguments of Manchester Mayor Andy Burnham who refused to allow his City to return to lockdown without a proper support package in place.

Ultimately, the Prime Minister asserted his authority and placed Manchester in Tier 3, but Burnham’s actions have prompted Sunak to act.

He will meet with Employers Groups and Trades Unions from the affected areas at the Treasury this morning to set out his plans for his fourth package of measures since the beginning of Q3.

It had become clear that a series of side-deals with local authorities as further regions go into Tier 3 was not going to suffice. A national policy which provides support, particularly for the lower paid is needed. While no details have been leaked it is possible that those earning the minimum wage will continue to do so.

Once the package is announced publicly, analysts will busily model the likely cost of further support and how it will affect Government borrowing going forward.

Without any fanfare or show of bluster, the UK and EU have agreed to return to the negotiating table. Michel Barnier and Lord Frost held a telephone call yesterday and agreed a series of protocols for the talks and agreed to a degree of flexibility on both sides.

The pound reacted positively to both developments, reaching a high of 1.3176 versus the dollar, its highest level since September 8th. It was unable to cling to all its gains and slipped back to close at 1.3149.

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Slowing productivity and aging population to slow economy

Former Federal Reserve Chairman Alan Greenspan made a rare venture back into the limelight yesterday. Speaking to Bloomberg, Greenspan expressed his concern over the fall in productivity across the entire country which, he believes, will begin to manifest itself in a slowdown in the economy.

Greenspan, considered the preeminent economic authority of his generation, also voiced his unease over the aging population and the increasing drag on growth that will be a by-product of higher social security payments and falls in levels of saving.

This issue is an ongoing matter for the economy and will not disappear as Coronavirus eventually will.

Regional Federal Reserve Presidents and other permanent members of the FOMC are continuing to warn over the long-term effects of the lack of a Pandemic Support Bill, Despite this, the election has moved to the top of most Politician’s agenda with less than two weeks to go.

One of the more surprising pieces of news in the past 24 hours was the sight of President Trump abandoning an interview on the influential 60 Minutes TV programme when asked about his personal dealings in China. Having criticized big business for its ties to Beijing it has been revealed that Trump’s personal relationships in the country run deep.

With the final Presidential Debate taking place this evening in Memphis, the two protagonists will be provided with a more civilized environment to get their points across without interruption.

Today’s release of weekly jobless claims is not considered as a singular event but form part of a series which is a reliable indicator for the state of the employment market. With data remaining volatile and not showing a continuous improvement, fears are growing that Q3 GDP will be moderate at best and the jury is still out on Q4, as the infection rates increase in several states.

The dollar index continued its recent weakness yesterday, falling to a low of 92.47. It has fallen on nine of the past 11 sessions, indicating concerns over the election outcome and the lack of progress in finding a vaccine for Covid 19.

Lagarde voices concerns over lack of economic support

The euro continues to provide the ECB with a conundrum it lacks the tools or wherewithal to solve. The president of the Central Bank, Christine Lagarde, made an oblique reference to the strength of the currency yesterday commenting that price stability is at the centre of the Central Bank’s work.

Her Chief Economist, former Governor of the Irish Central Bank, Philip Lane was also on the wires talking about inflation. He said that the sweet spot for the economy is low inflation with a buffer above zero and that negative inflation (deflation) is very bad for the economy.

He failed to mention that the economy has been in a deflationary state for a few months and was therefore not in a position to suggest any way to solve the issue.

In an interview, Lagarde opened the can of worms surrounding the issue of EU debt. The fiscal framework does not allow for continued issuance, other than in a crisis but Lagarde wants to change that and make such funding a part of the Central Bank’s weaponry.

This could be seen in the future as the opening salvo in the move towards and more Federal Europe with a Treasury to run in conjunction with the ECB.

The members of the Frugal Five, Austria, Belgium, The Netherlands, Sweden and, Finland are unlikely to view this attitude favourably, particularly in the midst of a crisis where their position is under pressure but it is unlikely that other members will be prepared to discuss such important matters until the region’s temperature has returned to normal.

Consumer confidence data will be released later this morning with concerns that it will overshoot to the downside. Last month confidence was at -13.9 and it is expected to fall to -15 although some analysts are even more bearish.

Tomorrow’s PMI data is also likely to infer economic weakness but so far this week, the euro appears to be defying gravity, spurred on by the dollar. It rose to a high of 1.1880 yesterday, closing at 1.1860. The path to 1.20 is becoming less difficult but will obviously depend on the news emanating from the U.S. over the next two weeks.