Is Johnson simply toying with the opposition?

The level of fatalities from Covid-19 in the UK has dropped to a level not seen since the early days of the Pandemic and infections have now begun to follow.

The rollout of the vaccination programme has been a major success, but the Prime Minister attributes the success in bringing the virus under control to the vaccination programme and the third lockdown in almost equal measure.

For this reason, while the next stage of Boris Johnson’s roadmap to recovery will take place in the middle of next month concerns remain that there could be another spike.

There has been no indication yet about when the confirmation of the lifting of more restrictions will be made but even to the untrained eye the programme has been a major success.

The Bank of England is now starting to take a look at how it can support small businesses following Brexit. It feels confident that its support for the economy through monetary policy should be sufficient for now.

While it will need to remain vigilant, especially concerning three specific areas; inflation, employment and the housing market, the Bank will be able to support the Chancellor to be in a position to begin to scale back fiscal support later in the year.

In the City, financial markets are almost in a state of disbelief concerning the UK’s recovery from the Pandemic.

Looking back to the hung Parliament, the inability of Theresa May’s Government to obtain a majority for several parts of the proposed Brexit agreement, then the Pandemic, the recovery has been nothing short of miraculous.

One of the other factors facing the Bank of England is access to EU financial markets. Clearly, Brussels won’t allow UK firms to compete on a like for like basis with its own banks, insurance companies and other financial services institutions.

There was a story circulating yesterday that the French Government is attempting to link access to the UK’s fishing grounds to UK access to EU financial markets.

The UK believes that it managed to extract as much as it could from negotiations to support the UK’s fishing industry and will give short shrift to any French attempt to reopen talks.

The pound continues to butt up against the 1.40 level versus the dollar and time may be running out for further advances as the Fed begins the process of considering how and when to begin the tapering of support.

The pound traded in a very narrow range yesterday, closing hardly changed on the day at 1.3940.

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Pending home sales back Powell’s comments

The U.S. economy is beginning to show signs of overheating. The first official release of Q1 GDP which took place yesterday saw the economy grow by 6.4% between January and March.

The positivity being generated by the Fed and Treasury across the entire country means that even President Biden’s approval rating is beginning to improve.

The cautious outlook that Jerome Powell provided on Wednesday contrasts with the data, but Central Banks believe that today’s data is a result of the adjustments made a few months ago, so today’s policy is designed to either improve the situation in a few months or provide the support that may be needed.

It may be counterintuitive but data for pending home sales will have been encouraging for the FOMC despite the data being well below market expectations.

Powell is concerned that the lack of stock will see house prices continue to rise and that will add fuel to the level of inflation. The balancing of supply and demand across the entire economy is a delicate balancing act which should, in normal times, be a natural phenomenon.

Given the pent-up demand that has grown during lockdown, coupled with the Administration’s several stimulus programmes, the Central Bank may need to act to steady the ship.

The market would have pronounced itself satisfied with the latest FOMC meeting. Traders and investors will always want the opportunity to shoot fish in a barrel through excessive advance guidance of the Bank’s intentions, but for now they will be satisfied that there is a plan in place to tackle rising inflation.

The dollar index remains pressured by ultra-easy monetary policy but as in the case of the pound, it remains in a tight range, hemmed in by natural support around 90.40 and selling interest close to 91.20. Yesterday, it closed at 90.65.

Is it a turning point or a crossroads?

Philip Lane, the ECB’s Chief Economist has injected a degree of realism into the conversation about the recovery of the Eurozone from the Pandemic.

With a large swathe of the economy still in lockdown and Government borrowing, already at historic high levels set to continue to grow, any recovery may not be considered solid until possibly the fourth quarter.

With so many land borders that are completely open to travel, containing the spread of the virus has been almost impossible.

With national Governments acting at a differing pace to contain the spread and the EU Commission hamstrung in any attempt to impose a Union-wide travel ban, getting control of the virus was an almost impossible task.

That has meant that the authorities have had to act in a different manner which was more like the U.S. than the UK.

Lane spoke of a turning point in the recovery but to many analysts it looks more like a crossroads. The third wave is not fully under control and while a fourth could happen it is not expected to be as virulent as is being seen currently.

The vaccination programme is beginning to gain traction, but the operational difficulties in delivering it to so many individual states who want to handle distribution in their own way is slowing progress and it will be at least the end of the current quarter until real progress is seen.

There are growing concerns about individual nations borrowing and this is beginning to worry EU officials in both Brussels and Frankfurt. France was the first to be highlighted and yesterday, the Bank of Spain also expressed its concerns over financial stability.

Banks are being expected to increase provisions for bad loans as the economy, in which tourism is a significant part, while not falling precipitously any more is struggling to see any growth at all.

While the human burden of the Pandemic is slowly improving, the financial issues may only just be beginning.

The fate of the euro remains in the hands of the FOMC. Yesterday it fell to a low of 1.2102 but closed virtually unchanged at 1.2121.