Fears grow about HHS being overwhelmed

The pound is reacting poorly to the unique set of challenges that face the country as a second lockdown is about to begin.

With greater knowledge of what to expect economically from the closing of every sector of the economy other than education, the long-term effect is likely to be close to catastrophic.

When the Government shut down the entire country in March, it was generally acknowledged that it was the right move to make but was criticized for being done too late and without sufficient notice.

Rishi Sunak, the Chancellor who had been in the role just over a month, was generally praised for his rapid response to the concerns of those on furlough for adopting a series of measures designed to keep both workers and employers afloat.

The second lockdown which will start tomorrow and, according to Boris Johnson, is time bound ending December 2nd. It has again been criticized for being too late although the Government appears to have gone back to accepting the advice of the scientists who have no court of public opinion to satisfy.

According to most experts, the one month lockdown will give the NHS the degree of breathing space it needs, but any lockdown is little more than a delaying tactic which, it is hoped, will allow track and trace to be upgraded into the system the Government promised more than three months ago.

The ongoing financial effect of the lockdown won’t be seen for some time as businesses, particularly in the hospitality and tourism sectors try to cling on. It remains to be seen if a late summer/autumn burst of activity provided the tourist sector with the income to survive through the winter, something it is used to facing.

While the country has faced crises before, they have generally been more financial and less social and while redundancies have a devastating effect and weakening financial markets often appear to be happening elsewhere, the current and ongoing crisis affects every person and every sector of the population.

While dealing with saving lives, the Government is still grappling with Brexit. Just because the Covid crisis has replaced it on the front page of newspapers, the economic effect is no less real.

Deal or no deal, there is an economic cost to bear in the shape of a hit to growth which the country could barely afford even before the current recession.

The pound has been unable to sustain its recent bout of strength, falling to a low of 1.2903 but rallying late on to close at 1.3025. So far overnight (05.00 GMT) the pound has risen to a high of 1.3140 but fell back very quickly as news and rumour from the U.S. election filters through.

The Bank of England Monetary Policy Committee meets today and tomorrow and an in-depth discussion about the long-term effectiveness of bond purchases will take place.

The Bank now owns more than 40% of all Government debt. That is almost double the level of the Fed’s holdings although still well short of its own rule which allows it to hold up to 70%. MPC members would start to be concerned long before that level was reached. The Bank is expected to announce tomorrow that it is adding a further £100 billion in purchases.

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Prediction machinery and rumour mill in full flow

The counts continue in the U.S. following the closing of polls overnight.

Tight races are expected with Covid-19 concerns currently outweighed by the economy as the most important topic to voters according to exit polls.

Continued expectations and projections can do little more, even now, than predict a tighter race even than had been forecast.

Stories are coming in of results that defy the opinion polls with Key Trump supporter Lindsay Graham retaining his Senatorial seat against seemingly overwhelming odds in South Carolina.

The closer the race becomes, the more concerns there will be about fraud over postal voting from Trump and stumbling over the finish line for Biden.

Trump’s battling end to campaigning appears to have galvanized wavering supporters. He retains a very vocal support, but it was underlying votes in key States that were his primary concerns.

The dollar will almost certainly suffer a knee-jerk reaction to the result but longer term it appears a degree of weakness beckons as the trade deficit is unlikely to change even in the medium term. Although, Trump, should he win, has promised to slash the country’s reliance on China.

Also starting today is an FOMC meeting attempting to keep the country’s feet on the ground. Economically, the lack of a Job Support package is Jerome Powell’s main concern but while alluding to that in his press conference later, his concerns over remaining in employment may be his own personal issue should Biden win.

Powell’s colleague on the Fed’s Board of Governors, Lael Brainard is heavily tipped to take over should Powell step down forcibly or voluntarily. She is far more inflation focussed than previous Chairmen so a change in direction may not be the foregone conclusion it had been imagined to be.

The dollar index has been volatile over the past 24 hours. It has fallen to a low of 93.28, risen to a high of 94.30 and currently (0530GMT) resides around 93.85

ECB Council members lack sense of leadership

Without the courage to blame themselves for the inability of the ECB’s Governing Council to effect change rapidly and decisively, its members appear to be turning on its President, who is just one year into her fixed eight-year term.

Rumours are emerging that Christine Lagarde’s credibility is suffering, particularly in comparison to her predecessor, Mario Draghi

Super Mario was seen as far more than a political figurehead during his term and has been credited with several ground-breaking rallying calls but also following through on his words.

Very little was heard from members of the Council during Draghi’s term. It was always assumed that he spoke for the entire council. It is notable that over the past few months nearly every day has seen a speech (or two) from a council member, not always sticking to the party line.

When, rather than if, the EU survives its latest crisis, several reforms will be necessary, the most important being the agreement of some form of fiscal unity. The Coronavirus Pandemic has been surprising in that it has shown just how loose an affiliation the region is in practice.

Coupled with greater fiscal cooperation, The EU Commission must be given greater power to dictate policy. It must be allowed to govern, rather than be reactive to individual country’s Heads of Government. That system is fast becoming cumbersome and unworkable, highlighted by varying responses, particularly to the Second Wave.

A reform of the ECB is also necessary. In conjunction with fiscal union, the Bank’s Governing Council needs to be trimmed to a reasonable size with the various Central Bank Heads taking their turn to sit at the top table. It will need to be a larger Committee than the FOMC as the political views represented are far wider than in the U.S.

Data for services output will be released later this morning., The risk is very much to the downside although predictions are for activity to be unchanged, remaining in contraction at 46.2.

In keeping with other major currencies, the euro has seen an increase in volatility. It is currently trading at 1.1658, having traded up to 100 points higher earlier.