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ALEX BRUMMER: US economy a concern for Whitehall

ALEX BRUMMER: US economy is in terrible shape and that should be a concern in Whitehall as America is our biggest trading partner

August was often a month full of unpleasant financial markets and the forecasts for this year are not great.

The total collapse of 32.9 percent of US production in the three months to the end of June, the worst since the first quarter of 1946, is truly terrible.

It was enough to scare President Trump into musing on Twitter that Covid-19 and the wave of votes by mail could lead to fraudulent November presidential elections.

Going in the Wrong Direction: Any hopes that the normally resilient US economy would achieve the dream recovery in the shape of a V has faded

Going in the Wrong Direction: Any hopes that the normally resilient US economy would achieve the dream recovery in the shape of a V has faded

The US economy is in a terrible state and that should be a concern in Whitehall as America is our largest trading partner. The conclusion of a trade agreement with the US is critical to Britain’s vision.

The only comfort that can be drawn from the US data is that it is measured on an annual basis. On the simpler standard used by the UK, the decline is actually 9 percent, which is relatively modest compared to the 19.1 percent decline in GDP in Britain in the three months to May.

The unemployed picture in the US is also alarming. Another 1.4 million workers were entitled to benefits up to July 18, bringing the total to more than 17 million. Any hope that the normally resilient US economy would achieve the dreamed ‘V’ shaped recovery has faded as Covid-19 hotspots have emerged.

At the moment, the White House is facing an inverted ‘L’ – a dip in output followed by a period of flat lining.

Mesmerized by the profitability of major technology during lockdown and tending to ignore miserable economic data, Wall Street plummeted more than a percent and should be concerned that this is the beginning of something worse.

Why should you fear August? Traditionally, it is the month when the top traders are on their yachts or in the Hamptons, and it is lesser mortals who lead the market. Here in the UK, it was the month of 1992 when the pound sterling started its journey outside the exchange rate mechanism (the predecessor of the euro). It was also the month when the run on Northern Rock started in 2007 and a year later the fate of Lehman was sealed.

Have courage.

Last curtain

The pandemic proves the ultimate stress test for global banking.

Changes in the way banks reserve money for future losses absorb the market, with provisions at Lloyds Bank in the first half of the year 60 percent higher than forecast.

The best scenario is that the very cautious CEO Antonio Horta-Osorio wants to peak and preload the potential damage, resulting in a £ 3.8 billion provision in the first half – leading to a cash loss of £ 560m .

Certainly, Santander took the opportunity earlier this week to sink the goodwill in his accounts, which goes back more than a decade.

I suspect that the outlook is as bleak as Lloyds’ provisions suggest.

The pressure on the household finances of millions of ordinary citizens in the pandemic is enormous.

While Covid-19 loans may come with a government fee, all kinds of pre-pandemic credit – from mortgages to credit cards and motorcycle loans – can go badly wrong. The real estate problem was the main problem in earlier downturns in Great Britain. History is likely to repeat itself. Fashion for home and flexible working will take its toll on office values.

Even more seriously, Covid-19 has been a killer for city center shopping and dining and secondary malls.

Retail chain loans will have to be rescheduled or written off, and the massacre can grow as big as it did after the financial crisis.

Markets are looking weakly at banking stocks and Lloyds shares, which are widely held by private investors, fell 7.6 percent to the lowest level in eight years.

That is not the legacy Horta-Osorio dreamed of.

Snap back

Kodak has long been considered a bombed photographic company with a dominant brand, a sinking company and desperate for a deal.

This week, it joined the pharmaceutical frenzy after the Trump administration borrowed the £ 600 million to transfer its factories to produce ingredients for Covid-19 drugs.

The stock rose 16 times from $ 2 to over $ 30. Say cheese.