Political focus

Posted by: Paul Donovan

21 Sep 2020

Daily update

  • Global demand for goods seems to be holding up. South Korean exports rose in the first twenty days of September (there were extra working days, which helped the numbers). Globally, fear of the virus is sufficiently controlled as to allow consumers to spend their accumulated savings.
  • Fear of unemployment is an additional factor in the US, as extra unemployment benefits have stopped. Hopes for a fiscal package before the November election have fallen, as a vacancy on the US supreme court will increase political polarisation and shift political focus. (Markets tend to overestimate political focus on economic matters.)
  • The UK government is expected to extend its business loan scheme this week. There have been no leaks yet as to a possible extension of the employment furlough scheme.
  • Lending to companies makes sense where a company has delayed demand—where consumers do not buy now, but defer their purchases and buy more in the future. Lending to companies is not helpful where there is lost demand—where consumers do not buy now and will not buy more in the future. Grants are a solution for viable companies with lost demand. Lending should not be used to prop up companies that are not viable in the fourth industrial revolution.

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