Manufacturing output at 40 year low but services improve

Banks claim to have pumped close to 100 billion into the SME sector since the start of lockdown and the steps taken by the Government to protect jobs and the economy.

Despite this, the most up to date figures show that Manufacturing output is at its lowest level in forty years. That in itself is hardly surprising, manufacturing has been on a decline for many years since globalization has allowed firms to create, build or make goods of similar quality to what can be produced in the UK at a fraction of the cost.

One of the more significant outcomes of the pandemic, particularly if the UK’s fall out with China escalates is that as manufacturing develops and becomes less labour intensive, the cost of setting up in the UK will fall. That has already been shown in a few car companies with global brands moving production to the UK.

If the UK’s departure from the EU can be used (as Boris Johnson says it can) to make the country a manufacturing hub with significantly lower overheads and a fair and just trade deal, the departure from the Union may be a benefit in the medium to long term.

Meanwhile, the Government’s effort to prop up the economy in the short term continues to cause concern. While there is little that the Chancellor could have done differently or even more quickly, the sheer level of borrowing is attracting the focus of the ratings agencies. A downgrade for the UK would be nothing short of disastrous although that is both a long way away and not an issue the UK would face alone.

Later today, retail sales data will be released which will cover the first month since lockdown has lifted for the retail sector. While the number is expected to have increased it is the size of the increase that will exercise the market, especially since there have been plenty of headlines regarding the level of footfall.

Yesterday, the pound maintained the level it has reached this week versus the dollar although charts are giving the appearance of a currency running out of steam. The high was 1.2760, a little above yesterday’s high but it has failed to push on on three consecutive days now which could signal a correction.

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Do jobless numbers really matter to the Administration

The state and size of the recovery which is apparently underway in the U.S differs depending on who you ask.

Yesterday’s weekly jobless figures showed an increase in jobless claims for the first time since the initial spike took place at the start of the lockdown. In the past week, just over 1.4 million new claims were filed compared to 1.3 million last week. Continuing claims appear to be bottoming out although they broke below 1.7 million in the past week.

This data should draw the attention of the Treasury and Congress who have still apparently made little progress in what will happen after the initial relief package expires at the end of this month.

It seems that the Administration acknowledges that the initial package was done in a hurry and may not have been thought through especially since it appeared generous for a Republican Federal Government. This time it may be similar, but it seems that President Trump and his faithful sidekick, Treasury Secretary Steve Mnuchin want to add a few conditions and caveats.

Later today, output data will be released. This has taken on a far greater significance during the lockdown. In the past it was close to impossible to attribute activity on a national scale but now the data appears more reliable as a bellwether of many different economic drivers.

Any hopes of a swift economic recovery appear to have been scuppered by the increase in infections but as I say, it depends who you ask.

Anyone watching the equity markets will see that the DJI while a little patchy day to day is significantly higher than it was on March 23rd. By a few measures that signifies a recovery.

The dollar continues to slide as more traders appear to look at employment data than equity markets. Yesterday, the dollar index fell to a low of 94.59 and closed at 94.62. That is its lowest level traded since March 9th, and its lowest close since late September 2018.

Concerns over another fudged agreement

The expression milking it for all you can get comes to mind when looking at the reaction to the agreement of a Pandemic Relief Fund in the EU even though it is nowhere near as generous as it has been made out to be and will see a supplemental budget need to be presented in three or four years which will be an interesting negotiation.

The makeup of the Funding means that Ireland which makes up around 1% of the population of the EU is the fifth highest contributor. Of course, since the President of the Eurogroup is now an Irishman all is well.

With the funding split between loans and grants, it is difficult to say which will come first. It would be typical of the EU to make every cent distributed to be part loan and part grant and then to be unable to distinguish once repayments become due.

There are some analysts that now believe that the EU and its many Councils, Commissions, Parliamentary groups, officials, and bureaucrats is more resilient than it was. This is apparently because it has shown that in a crisis the whole comes together and proves it is stronger than the sum of its parts.

This is, of course nonsense. If anything, its most enduring quality is its ability to either drive things further and further down the road or negotiate endlessly.

The reliance of the EU is not seen in its ability to make decisions, on the contrary, the lack of trust that exists on just about every level following last week’s summit is palpable.

Just as Mario Draghi was able to pledge to do whatever it takes to save the Euro, because he knew he had the technical means to do so, so does the EU Commission know that it has managed to browbeat several nations into agreeing common bonds, another technicality which the market is celebrating short-term as it did with the euro.

Draghi made that speech almost exactly 8 years ago. The euro was trading at 1.32 the day before, Yesterday, it closed at 1.1596.