Morning Report

May 24, 2022

“The European currency bolstered, after President of the European Central Bank, Christine Lagarde, announced that the euro zone would be coming out of negative interest rates before the end of the third quarter – boosting market expectations that interest rates in Europe will surge soon.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Joe Biden has pledged to use military force to defend Taiwan if China invades. During a news conference in Tokyo yesterday Biden said, “Yes. That is the commitment we made,” when asked whether he was willing to use force to defend Taiwan. Biden’s remark appeared to overturn the decades-old US policy of “strategic ambiguity” on whether it would defend Taiwan, but the White House insisted its policy on the democratic island had not changed. The president’s comments have reignited speculation about his stance on Taiwan. Some defence experts had urged Biden to make it clear that the US would defend Taiwan as a way to deter an increasingly powerful China. But there has been no sign of a formal policy shift apart from his comment in Tokyo and two similar remarks last year. On all three occasions, the White House immediately rolled back on the remarks.

Auditors and tax advisers in the UK are lobbying the government for exemptions from a ban on working for businesses in Russia imposed after the invasion of Ukraine. Foreign secretary Liz Truss this month announced plans to force British accounting, management consulting and public relations firms to cut ties with Russian clients as part of efforts to punish Russia’s president Vladimir Putin. Some advisers, including insolvency practitioners, say that the proposed ban will make it risky or even impossible for them to help clients with Russian links to meet certain legal obligations such as filing tax returns in the UK and elsewhere. The ban on professional services exports followed the imposition of UK economic sanctions against more than 1,600 Russian individuals and entities.


Sterling is stronger against euro and weaker against the dollar this morning. Liz Truss is resisting pressure from a close ally of Joe Biden not to rewrite the Brexit deal’s Northern Ireland protocol. Chancellor Rishi Sunak has ordered officials to draw up plans for a possible windfall tax on more than £10bn of excess profits by electricity generators, including wind farm operators, on top of a hit on North Sea oil and gas producers. Meanwhile, the biggest producer of oil and gas in UK waters has repeatedly sounded the alarm over government threats of a windfall tax on the industry’s surging profits, warning it would make some North Sea projects uneconomic and could be “detrimental” to energy security. Andrew Bailey fought back yesterday against critics of the Bank of England’s handling of inflation, insisting that the central bank had not allowed the economy to overheat and was treading a “narrow path” to contain price rises without triggering a recession.


Euro is weaker than most major currencies in the early morning trade. The European Union will likely agree an embargo on Russian oil imports “within days,” Germany’s economy minister said yesterday, but making a dent in Russia’s war chest may require capping global oil prices. Meanwhile, a survey showed that German business morale rose unexpectedly in May thanks to a pick up in the services sector in Europe’s largest economy that helped offset the impact of high inflation, supply chain problems and the war in Ukraine. New Australian Prime Minister Anthony Albanese said his goals were aligned with the priorities of the Quad grouping of countries, telling the leaders of the United States, India and Japan that he wanted to also discuss climate change.


The dollar is well bid against most major currencies overnight. Money market funds and banks parked a record $2.04tn at the Federal Reserve on Monday, underscoring the demand for safe-haven investments as interest rates rise and financial markets whipsaw. The figures disclosed by the Federal Reserve Bank of New York marked the first time that more than $2tn had been tucked away in the Fed’s overnight reverse repurchase facility. Pfizer said it will seek emergency authorisation in the US for its Covid-19 vaccine for children under the age of five after interim results from its clinical trial showed the jab is safe and highly effective. An authorisation would open up the last large market for the Covid vaccine, potentially paving the way for a longer-term revenue stream if it became part of the childhood immunisation schedule.


Stocks in Asia and US equity futures declined today as a profit warning from Snap Inc. sank technology shares and investors questioned fresh Chinese stimulus. Chief Executive Carrie Lam said Hong Kong was “very unlikely” to further relax its border control during her leadership. Nasdaq 100 futures tumbled almost 2%. Facebook parent Meta Platforms Inc. and other companies that rely on digital advertising plunged after Snap said it’s unlikely to meet revenue and profit forecasts. S&P 500 and European contracts slid. The dollar edged higher, while Treasuries fluctuated. Equities have been volatile as investors assess the outlook for monetary policy, inflation and the impact of China’s strict Covid policies on the global economy. Minutes on Wednesday of the most recent Federal Reserve rate-setting meeting will give markets insight into the US central bank’s tightening path.

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

8:00 a.m.: UK April public finances
8:45 a.m.: France May business, manufacturing confidence
9:15 a.m.: France May S&P Global PMIs
9:30 a.m.: Riksbank publishes financial stability report
9:30 a.m.: Germany May S&P Global PMIs
10:00 a.m.: Eurozone May S&P Global PMIs
10:30 a.m.: UK May S&P Global/CIPS PMIs
12:45 p.m.: ECB’s Villeroy speaks
2:30 p.m.: Riksbank’s Breman speaks
3:45 p.m.: US May S&P Global PMIs

Corporate Events

Earnings include Adevinta, Ralph Lauren, Abercrombie & Fitch, Urban Outfitters, Best Buy
Shell holds its AGM


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