May 10, 2022

“A pullback of the US dollar has helped sterling to recover some of its recent losses, however sterling continues to languish well below last week’s levels due to a pessimistic outlook for the UK economy – the Bank of England’s recent interest rate decision and anticipation of the Queen’s speech are weighing on sentiment.”

Sam Cornford, Partner – Head of Trading

Main Headlines

President Joe Biden yesterday urged Congress to quickly approve a multibillion-dollar aid package for Ukraine before trying to pass a new round of Covid-19 funding, warning that US aid for Ukraine’s fighters has nearly been exhausted. Biden’s new position marked a reversal from his insistence last month that the military aid and the pandemic funding be bundled together. Decoupling the two bills significantly increases the chances Congress will pass the $33 billion in requested Ukraine funding, while dimming hope for the $10 billion in Covid relief funds Biden said are necessary to supply updated vaccines and shots for the fall. US President Joe Biden says he fears Vladimir Putin does not have a way out of the Ukraine war. Speaking in Washington DC yesterday, Biden described the Russian president as “a very calculating man” but without an exit strategy and admitted “I’m trying to figure out what we do about that”.

New laws to outlaw guerrilla-style climate protests that have caused misery for the public are being unveiled in a bumper Queen’s Speech. A new offence of “locking-on”, targeting activists who lock or glue themselves together or to buildings, is planned by Home Secretary Priti Patel. Her crackdown comes in one of 38 new bills, which also include a bonfire of EU laws in post-Brexit reforms and levelling-up measures to revive town centres. Meanwhile, the Home Secretary’s controversial plans to shake up the way asylum seekers are treated, and deport some refugees to Rwanda, are running up against a barrage of legal challenges. The Public and Commercial Services Union, which represents civil servants, has joined forces with advocacy groups Detention Action and Care4Calais, to demand greater clarity from the Home Office on the criteria by which refugees will be selected for deportation.

GBP

Sterling is well bid against most major currencies overnight. British shoppers, feeling the hit from surging inflation, cut their spending for the first time since early 2021 when the country was under a coronavirus lockdown, according to a survey published today. The British Retail Consortium said total retail spending among its members – mostly large chains and supermarkets – was 0.3% lower than a year earlier, compared with 3.1% annual growth in March. Britain plans to widen a ban on employer exclusivity clauses to give low-income groups the option to work multiple jobs if they want to, the government’s business department said yesterday, as it laid out reforms to address a cost-of-living crisis. UK shares ended lower yesterday, as tightening lockdowns in China added to investors’ concerns about a recession amid the Bank of England’s dour economic outlook last week. The commodity-heavy FTSE 100 index fell 2.3% to record its lowest closing since March 16.

EUR

The euro is stronger against the dollar and weaker against sterling this morning. Europe must learn from its past mistakes and make sure no side is humiliated when Russia and Ukraine negotiate for peace, French President Emmanuel Macron has declared. Addressing massed ranks of service personnel on Red Square on the 77th anniversary of victory over Nazi Germany, yesterday Putin condemned what he called external threats to weaken and divide Russia. Speaking to reporters in the European Parliament, Macron said the May 9 anniversary was marked by two different faces; on the one hand, Putin had sought to “show force, intimidation” and deliver a “resolutely warlike speech”, while on the other the EU was working on deepening a peaceful project led by the people. Russian ambassador to Poland, Sergey Andreev – upon arriving at the Soviet Soldiers Cemetery in the Polish capital to pay respects to Red Army soldiers who died during WWII – was doused in red paint as he was met by hundreds of protestors.

USD

The dollar is weaker than most major currencies in the early morning trade. President Joe Biden will draw a contrast between his economic plans and those of Republicans in remarks today focused on inflation, a White House official said. Biden, a Democrat who is suffering from low approval poll numbers ahead of the November midterm elections, has sharpened his rhetoric against Republicans in recent weeks, dismissing, for example, former President Donald Trump’s “Make America Great Again” MAGA movement as extreme. The Federal Reserve can still achieve a soft landing for the US economy, which means a 0.50-1.00 percentage point pace of growth below potential, according to Goldman Sachs Jan Hatzius in his latest research note. That soft landing suggests growth that is weak enough to persuade firms to defer some of their expansion plans and close some of their vacant positions, but not too weak as to spur massive layoffs and a sharp rise in the unemployment rate.

Markets

US equity-index futures rallied, and European stocks opened higher as dip buyers emerged from the ruins of yesterday’s rout, even though sentiment remained fragile over concerns about inflation and economic growth. Futures on the Nasdaq 100 Index jumped 1.7% a day after valuations on the equity gauge plummeted to the lowest in two years. S&P 500 contracts rose more than 1%. Haven demand eased, with the dollar halting a three-day advance and Treasuries falling across the curve. Oil and iron ore extended their losses amid worries Chinese lockdowns will reduce demand. Bitcoin recovered above $32,000. A sharply lower opening for Asian markets, initially reflecting yesterday’s selloff in the US, eased as the day progressed. Chinese mainland stocks advanced, and Hong Kong shares pruned their declines. At the European open, the continent’s equity benchmark rebounded from a two-month low, with most of its 20 industry subgroups rallying.

Main Economic Data/Central Banks/Government (All Times CET)

10:00 a.m.: Italy March industrial production
10:30 a.m.: Bank of Italy publishes bank statistics
11:00 a.m.: Germany May ZEW Survey
1:40 p.m.: Fed’s Williams speaks
3:15 p.m.: Fed’s Barkin speaks
4:00 p.m.: ECB’s Nagel speaks
5:40 p.m.: ECB’s Villeroy speaks
7:00 p.m.: Fed’s Waller and Kashkari speak
7:20 p.m.: ECB’s de Guindos speaks
Bank of France April Industry Sentiment
Italy’s Mario Draghi visits the White House
EIA releases its Short-Term Energy Outlook

Corporate Events

Earnings include Peloton, Occidental, Nintendo, Coinbase, Bayer, MunichRe, Porsche, Liberty Global, Sysco, Warner Music, Roblox, EA, Bentley Systems, Builders FirstSource, Planet Fitness, Hyatt Hotels, De’Longhi

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