Morning Report

May 20, 2022

“The euro is nearing parity with the US dollar for the first time in 20 years, having been in a steady decline for almost a year, down from $1.22 last year – the dollar has been strengthened by risk aversion in markets as concerns about Russia’s war in Ukraine and the resulting economic fallout drive investors towards traditional ‘safe haven’ assets.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US Senate approved $40 billion in military, economic and humanitarian assistance for Ukraine yesterday, as Russia continues its offensive in the country’s Donbas region. The vote passed 86-11 after a week-long delay and despite opposition from a handful of self-described America First Republicans. US president Joe Biden is expected to quickly sign the measure, freeing up vital assistance as the war enters its fourth month. More than half of the funds in the new package will be earmarked for weapons, equipment, and military financing for Ukraine, as well as for restoring US weapons stocks and support for European Command operations. The new assistance comes as US officials described a grinding and slow offensive in Ukraine’s east that is shifting into a war of attrition. Biden administration officials are sceptical of the prospects for any imminent diplomatic solution. Thursday’s package is expected to last at least through September.

UK consumer confidence has dropped to its lowest level for nearly 50 years amid the cost-of-living crisis, according to a survey, fuelling concerns that the economy will slide into recession in 2022. The UK consumer confidence index fell 2 percentage points to minus 40 in May, its lowest since records began in 1974, said research company GfK in a report published today. The survey measures how people view the state of their personal finances and wider economic prospects. Joe Staton, client strategy director at GfK, said: “Consumer confidence is now weaker than in the darkest days of the global banking crisis, the impact of Brexit on the economy, or the Covid shutdown.” The fall in consumer confidence is the first sign that the UK economy is experiencing a protracted period of economic stagnation coupled with historically high inflation, a combination usually referred to as stagflation.


Sterling is well bid against most major currencies overnight. The UK chancellor Rishi Sunak is under mounting Conservative pressure to radically cut taxes in the coming months. The question facing him is whether he can do it without pouring fuel on the inflationary fire. Sunak wants to be remembered as a tax-cutter. Most Tory MPs expect him to start cutting income tax, or VAT, as part of a broad package of measures later this year, but the chancellor is treading cautiously. In particular, he fears that unfunded tax cuts could now fuel inflation, forcing the Bank of England to raise interest rates further, worsening the cost-of-living crisis and pushing up the government’s debt servicing costs. British police ended their investigation yesterday into COVID-19 lockdown parties held at Prime Minister Boris Johnson’s Downing Street office, having handed out 126 fines in a scandal that has called into question his leadership.


The euro is weaker than most major currencies in the early morning trade. The Group of Seven agreed yesterday to provide Ukraine with €17.6 billion to pay its bills, funds that Ukraine’s Prime Minister Denys Shmyhal said would speed up Kyiv’s victory over Russia and which were just as important as “the weapons you provide”. “The message was: ‘We stand behind Ukraine. We’re going to pull together with the resources that they need to get through this’,” US Treasury Secretary Janet Yellen told reporters at the G7 finance leaders’ meeting at Königswinter, near Bonn in Germany. G7 finance ministers had been trying to strike a new deal to keep Ukraine’s budget afloat without losing sight of the global economic impact of Moscow’s war. President Emmanuel Macron’s new government will be announced this afternoon with a first meeting of the new cabinet slated for Monday, the French Presidency said today.


The dollar is stronger against the euro and weaker against sterling this morning. The US House passed a bill yesterday that allows the US president to issue an energy emergency declaration, making it unlawful for companies to excessively increase gasoline and home fuel prices. However, it is speculated that it is unlikely that the bill will pass the Senate, and it will then be required to be signed by President Joe Biden to become law. The US is about to vault into a new era of supercomputing, with a once in a decade leap forward in processing power that will have a big effect on fields ranging from climate change research to nuclear weapons testing. But the national swagger usually prompted by such breakthroughs is likely to be muted. China passed this milestone first and is already well on the way to building an entire generation of advanced supercomputers beyond anything yet in use elsewhere.


Stocks in Europe and US equity futures pushed higher Friday after China’s latest measure to bolster its economy injected a note of optimism at the end of another volatile week for global markets. The Stoxx Europe 600 index added more than 1% at the open. Basic resources led the advance as industrial metals rallied. Consumer products were the only sector in the red as luxury-goods business Richemont slumped after an earnings miss. Shares rose in Japan, Hong Kong, and China, while US futures gained about 1%, shrugging off modest losses on Wall Street yesterday. Treasury yields rose along with yields on European bonds, and the dollar held its biggest one-day drop since 2020. Oil was steady near $111 a barrel. Rebounds in risk sentiment have tended to fizzle this year. Investors continue to grapple with concerns about an economic downturn, whilst global shares are on course for a historic seventh week of declines.

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

8:00 a.m.: UK April retail sales
8:00 a.m.: Germany April PPI
8:00 a.m.: Sweden 1Q total employees
8:00 a.m.: ECB’s Muller, Kazaks, Simkus speak
9:30 a.m.: BOE’s Pill speaks
10:00 a.m.: Poland April PPI
10:00 a.m.: Norges Bank 2Q expectations survey
12:00 p.m.: UK to sell bills
1:40 p.m.: ECB’s Centeno speaks
4:00 p.m.: Euro-area May consumer confidence
6:30 a.m.: ECB’s de Cos at exhibition at Belgium’s central bank
7:00 p.m.: Baker Hughes US rig count


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