Headlines this week have been dominated by Brexit negotiations and the further restrictions imposed as government concerns focus sharply on reversing the recent rise in the spread of infection.
Brexit negotiations were about a game of brinkmanship over the no deal scenario but have taken a largely unexpected turn when the UK published a bill to rewrite parts of the withdrawal bill. This has raised issues over both trust and legality, prompting a high-level meeting between Cabinet Office minister Michael Gove and European Commission Vice-President Marcos Sefcovic on Thursday. At the meeting Mr Gove reasserted the UK’s position following which the EU has effectively threatened legal action against the UK if the bill is not withdrawn. Nothing less than a diplomatic explosion.
Financial markets remained relatively unaffected and continue to look beyond this on the assumption that a deal will be done. It seems difficult to understand how this will be achieved as both sides become more entrenched in their respective positions. The EU has effectively said there will be no trade talks unless the UK backs down and no trade talks basically means no deal. The track record of this government does not suggest a willingness to back down on such matters.
The rise in infections has concerned everyone, not least of all the government, and restrictions have been announced to counter the rise. Young people are being quietly blamed for this and social media suggests resulting anger as they have simply been following guidance to return to work and eat out. As has so often been the case during the pandemic, communication of guidance could have been so much clearer and more effective. The government appear concerned about the rise of infection, and their approach suggests enforcement of more restrictions on gatherings now, to avoid another lockdown….anything, but another lockdown. This seems pretty sensible albeit an explanation of the reasons for the specific measures could be made much clearer to gain acceptance and greater compliance.
The UK is now much better prepared for what could result. We have PPE and hospitals are well equipped now following experience of dealing with the virus. We are sanitising, wearing masks and are generally virus aware. The infections are in a generation which are more resilient to the virus and mortality is therefore extremely low. However, the obvious concern of intergenerational transfer of the virus is rightly high.
In financial markets, the all-time high of the US Nasdaq 100 tech index and concern of overstretched values inevitably prompted some profit taking. The index has been something of a yo-yo recently in terms of volatility and the broader US market has clawed back much of gains made towards the end of August. In comparison the UK’s FTSE100 has had a positive week buoyed largely by a week pound amidst fears of a no deal Brexit. Earlier today the ONS (office of national statistics) reported that the economy had grown by 6.6% in July. This was largely expected but output remains well below pre-Covid’ levels. The direction of travel is good but we have a long way to go.
It feels as though markets are treading water, ignoring negative Brexit or vaccine news and instead waiting to celebrate some good news. While there’s an element of “furlough dread” it now seems accepted that the scheme has served it’s intended purpose and will be withdrawn next month. This will mean be some adjustment, but it looks as though markets will continue the trend of looking through short term bad news to maintain a more positive medium-term outlook.
Looking at the weather forecast over the weekend and into next week, the temperature looks set to exhibit some of the variances we’ve seen in stock markets. Accurate prediction of either seems however to be out with our grasp. Have a good weekend.
Regards
Kenny