No deal back on the table

At a press conference last evening it became very clear how much Prime Minister Boris Johnson had gone against the scientific advice to allow a softening of the Coronavirus regulations in order to allow the country to have as normal a Christmas as possible.

The revamped tier system which will come into force next week will be tougher than it was in the period running up to the current lockdown with hardly any regions in Tier one.

This means that the hospitality industry faces severe restrictions with a large swathe of the country seeing its pubs and restaurants either unable to open or facing draconian limitations.

Following on from the spending review announced by the Chancellor the previous day, the public face an extremely difficult period until next March.

The Government has made it abundantly clear what it deems necessary to bear down on the virus and ensure that mass testing and the introduction of a vaccine are successful.

The recent comments made by officials from both sides of the Brexit negotiations have been fairly intangible, but they appear to mark a subtle shift in the talks with no-deal appearing to make something of a reappearance.

EU Commission President Ursula von der Leyen said yesterday that preparations for a no deal outcome are continuing. UK businesses continue to stockpile raw materials and components ahead of the change in rules while it has been made clear by the UK Chief Negotiator that a deal is eminently preferable but not at any cost.

The outstanding issues remain the same, fisheries and competition rules. It must be clear what the opposing positions are now, so the choice seems fairly stark to both sides, compromise or walk away.

The impact of the Coronavirus Pandemic on the UK has been viewed in fairly abstract terms but a comment from Rishi Sunak yesterday brought what the country is facing into stark relief.

The country’s economy will end 2021 close to 11% smaller than it was in January but more shockingly, at the time of the next election it is expected to still be 3% smaller.

The pound experienced a slight correction to its recent rally yesterday as the stretching of the elasticity of the rise reached close to its limit. It fell to a low of 1.3322 but closed at 1.3356.

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Minutes express worries over employment

The minutes of the most recent FOMC meeting were supportive for the economy, not in action, but in a promise to act should it again become necessary.

There was also something of a return to Chairman Jerome Powell’s past tactic of putting a policy in place then giving it time to work. Powell exhibits far more of a lawyer’s patience than an economist’s urgency for results.

The other message from the minutes was the Central Bank’s apparent impatience with the Administration(s) over the agreement and delivery of a Pandemic Support package. There have been proposals on the table from both sides of the aisle for some considerable time, but progress has dried up since the election.

Outgoing Treasury Secretary Steve Mnuchin has displayed what has been called by the incoming Administration an overwhelming degree of self over country as he puts his own future ahead of the nations by allowing additional packages which expire at the end of the year to close while preparing his departure from the role.

Data released the previous day showed that personal income fell. This highlights the lack of any support for those whose jobs have disappeared during the Pandemic. Weekly jobless numbers also continued their recent rises.

Although the ongoing number continues to fall new claims have hit a roadblock around the 750k level which is unlikely to improve before the Biden Administration takes over.

Although there is a longer-term light at the end of the tunnel, getting there will see severe challenges for the economy as Q4 activity faces mounting pressure. The market took that into consideration yesterday as it took the opportunity of the U.S. celebrating Thanksgiving to have a risk off day.

The dollar index rallied briefly, having again come to close testing support at 91.80 but ended the day virtually unchanged at 92.02.

Next week will see the further marginalization of the outgoing President as Joe Biden’s team gets up to speed, while on the economic front, the November employment report will be released.

ECB Council member sees no need for open ended PEPP

In a fairly typical day of vague promises, members of the ECB’s Governing Council used the age-worn tactic of trying to talk up the economy and their response to the crisis. Their comments are likely to fall on deaf ears as the financial markets are now fairly well tuned to their inability to turn things around without help.

There was even a mention of new tools being introduced to improve activity, output, and confidence, but until there is a clearing of the logjam over the relief bill little is likely to change.

A spokesman for te Hungarian Prime Minister Viktor Oban commented yesterday that the veto will remain in place since Oban has not received any proposals to remove the linkage of relief to certain political requirements.

ECB Member Robert Holzmann was the culprit regarding new tools, but he also made the point that there is a risk developing of asset bubbles as investors chase returns in what is likely to remain a low interest rate environment for some time to come.

One of Holzmann’s colleagues, Peter Kazimir, commented that he saw no reason for the Pandemic Emergency Purchase Programme to be made open ended. This was a veiled attempt to ensure that the entire Governing Council remains at the centre of the decision-making process as unwieldy as that may be.

There is far more discussion taking place over Brexit and as mentioned above, no deal seems to be becoming a possibility again. While there is still a degree of game playing happening, the seriousness of the threat of talks ending unsuccessfully should have dawned on the participants by now.

The euro drifted yesterday in a thinning market. It traded between 1.1885 and 1.1941, closing slightly lower at 1.1912.