Sterling a victim of low liquidity

UK Prime Minister Boris Johnson became the highest profile Covid-19 case to be hospitalized overnight as his 10-day long battle with the virus continues.

The Government statement said that the move was precautionary on the advice of his doctor. Should his situation worsen over the coming days, the Government’s response may be weakened. However, despite criticism of the Government’s preparedness for the virus outbreak, it is certain that a temporary replacement plan for the Prime Minister is in place.

The pound initially fell in early Asian trading this morning but has stabilized. One of the reasons for recent increased volatility for Sterling has been a lack of liquidity as many traders are self-isolating at home with the markets existing on mostly corporate business due to the fragility of the situation.

Release of activity data on Friday also contributed to the weakness of the pound. The continued lockdown in the UK led to a record fall in the services PMI which reached a low of 34.5 in March.

As deaths from Covid-19 reach close to 5,000, the lockdown is set to continue as the country remains short of the apex of the infection curve. While Spain and Italy appear to be levelling off the UK remains about two weeks behind.

Construction is one of the few sectors that has come in for criticism for having remained active during the lockdown and today’s PMI data for that sector will show just how much activity has been affected.

Data for industrial and manufacturing data will be released on Wednesday and they are both bound to be affected as will NIESR GDP estimate that will be issued on Thursday with the week being shortened by the Easter holiday.

On Friday, the pound closed the week at 1.2270 having reached a week’s low of 1.2205.

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Negative NFP breaks 113-month record

The market was woefully inaccurate in its estimates for the headline March non-farm payrolls as the employment report was released on Friday.

A little over 700k jobs were lost in March as the Covid-19 pandemic swept across the U.S. with New York, New Jersey and Michigan the worst hit. However, with close to 3x more cases than the second on the list, New York is far and away the worst hit state.

Jerome Powell and his colleagues at the Fed. are being praised for their efforts to protect the economy from the virus’ fallout and the Treasury has injected a massive package of aid. It is, however, the human cost that is making headlines and the economic aid for businesses can only be effective once the number of infections and deaths stabilizes.

With 701k jobs being lost in March, the data broke a record of positive jobs data stretching back 113 months. Analyst’s estimates had been woefully inaccurate with the consensus being for around 100k jobs having been lost. This highlights the difficulty in predicting this report since it contains a series of anomalies and estimates.

With President Trump continuing to push the business agenda and trying to assure investors that the worst will soon be over, it has been left to New York State Governor, Andrew Cuomo to put a more realistic spin on events.

He has pulled no punches in detailing the major issues of supplies of both personal protection equipment (PPE) and ventilators where he has said they simply do not exist since there is no Federal Government stockpile ready to be accessed.

The dollar remains volatile but as predicted on Friday the truly awful jobs data did not have a particularly negative effect. It rallied last week, reaching a high of 100.86 from a low of 98.3, closing at 100.64.

Nine EU members now back bond issuance

As the curve of new infections in Spain and Italy, Europe’s two most affected countries looks like it is levelling off, a concerted response from the EU looks as far away as it has ever been.

When the story of this event is written it may very well be the single occurrence that was the final straw for the entire EU.

There were cracks appearing during and following the financial crisis that were papered over as those nations most affected grudgingly accepted that their profligate spending had contributed in some way to the crisis. Nations that were used to high inflation, high interest rates and weak currencies couldn’t cope with the scenario driven by monetary discipline.

In the case of Covid-19 it has been a far more human tragedy in which Italy and Spain have been the epicentre through no real fault of their own. At the time when the virus first hit Italy so little was known about the projected effect and the country may have been a little slow in reacting, but that is nothing compared to how Brussels has performed.

I may be fantasising, but given the supposed unity in the region, I expected there to be news items showing trucks of aid passing from the less affected nations or from central points direct to those most affected. In reality that certainly hasn’t happened.

Financially the major effect is still to be felt as the aftermath of the pandemic claims more business and consumer confidence plummets.

The continued refusal of the frugal five to consider the issue of bonds with the guarantee of the entire EU will come to the fore as the Government spending of those weaker economies, skyrockets.

German Chancellor Angela Merkel added her weight to the argument with a firm nein to the proposal.

On Friday, Ireland joined its erstwhile colleagues from the financial crisis in calling for an EU-wide response.

Last week the euro was still at the mercy of the dollar. It traded between 1.1144 and 1.0772, closing at 1.0806.