October 15th deadline a line in the sand for Johnson

Despite the Coronavirus Pandemic worsening and the Government having to react to more criticism of its handling of the crisis almost daily, it is Brexit that has risen to the top of the Prime Minister’s to do list.

In his speech to the Conservative Party Conference earlier today, it was still Covid-19 and the aftermath of the second spike that led to Johnson adopting his best fight them on the beaches Churchillian persona. But away from the virtual Conference it was the future relationship with Brussels that was exercising his mind.

It is unclear whether the EU negotiating team actually believes that Johnson will pull the plug on negotiations on October 15th as he has promised, but it does appear to continue to hold their attention.

Talks have been extended and are now due to finish this week. Rumours were flying at lunchtime yesterday that the EU was admitting to some progress having been made.

An accord on Social Security coordination is now 90% complete. The biggest hurdles are still fishing rights, State Support, and Coordination of Business Governance.

Away from Brexit, it does seem likely that the country is heading for some form of lockdown as infections rise at a rate consistent with the warnings made in the middle of last month that new cases could be seen rising to 50k per day.

The IT failure over the number of new cases and the potential for track and trace to be rendered inefficient are major concerns for the country at large.

Several cities in the north of England have contacted the Government to request the guidelines be clarified with one Council Leader saying the restrictions are not working yet our economy is being decimated.

The pound reacted to just about every piece of rumour concerning both the Pandemic and Brexit and this led to a range of 1.3007 and 1.2897 versus the dollar yesterday.

Sellers do appear to be lining up on any break above 1.3000 and the market closed at 1.2904.

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Downplaying of Coronavirus irresponsible

President Trump was either released from hospital on Monday evening or discharged himself, it is unclear whether he acted on medical advice or not.

Either way, his joyride on Sunday evening and his almost theatrical removal of his mask on a White House balcony following his return from hospital have been heavily criticised as has his description of the virus as less serious than the flu.

While this is more an issue for November 3rd than the current state of the economy, the longer-term ramifications for the Trump Presidency are becoming more serious almost daily.

Joe Biden’s lead has almost doubled since last week’s debate and the Democrat Candidate is running neck and neck with Trump on how well it is believed they will each will manage the economy. The economy was seen to be Trump’s ace in the hole, but it seems a lot of voters are blaming him for his politicization of the Pandemic Relief Bill, and this is losing him support.

Fed. Chairman Jerome Powell, answering questions at a domestic symposium, spoke of his concern over the rate of recovery that could be expected without a substantial relief effort. He predicted tragic consequences if the current stalemate continues.

Right on cue, President Trump took to social media to reject House Majority Leader Nancy Pelosi’s request for $2.4 trillion to fund (in Trump’s words) poorly run, high crime Democrat States. He went on to say that the Administration had made a very generous offer of $1.6 trillion but he failed to mention the strings he had attached.

Powell had earlier warned that the risks to the economy are asymmetric in that too little support is far more dangerous than too much. This appears to support Nancy Pelosi’s view.

The dollar index remains unable to break higher. Yesterday it traded between 93.78 and 93.33. Until it is able to establish a foothold above 94.20, it is likely to continue to trade a narrow range since there is good buying interest below 93.20.

Lagarde seemingly at odds with ECB Chief Economist

While revising its forecast for the contraction of the global economy in 2020 to 4.5%, the IMF singled out the Eurozone as an area of concern.

There appears to be a disconnect between individual Finance Ministers and the Central Bank that is exacerbated by the lack of a single Treasury or Finance Department that is able to make wholesale fiscal decisions.

There also appear to be mixed signals being given by ECB President Christine Lagarde and the Bank’s Chief Economist Philip Lane. This is not totally without precedent. Witness the Bank of England’s Chief Economist who appears to be ploughing his own furrow. The difference is that when a decision is necessary, Andrew Haldane understands the virtue of a united front.

There is a concern that Ms. Lagarde is in danger of being undermined as she tries to move towards a consensus view on the need for further stimulus.

With the Irish Government rejecting the need for a return to full lockdown the growth of the second wave in mainland Europe is driving considerable concern.

Italy remembers well the sense of isolation it felt when its Northern States were the epicentre of the initial outbreak, yet it is prepared to again isolate itself. The only difference is that this time it is endeavouring to keep the virus out as cases in Spain and France rise exponentially.

While the ECB prefers to ignore the euro, the relative recent strength of the single currency is yet another factor putting downward pressure on prices and contributing to the current deflationary spiral.

Eventually this will lead to a fall in retail sales as consumers will be in no hurry to buy goods they see as becoming cheaper. This will lead to retailers discounting goods adding to the spiral.

The euro has gained as the dollar index has fallen. Yesterday the single currency reached a high of 1.1807 but it failed to create any momentum and fell back to close at 1.1750.