Morning Report

May 27, 2022

“Oil prices eased in early Asian trade this morning, after previously jumping to a two-month high as investors focused on the prospect of an EU ban on Russian oil. Meanwhile, Brent crude is on track for its biggest weekly jump with signs of tight global supply.”

Tim Hallinan – Trading Director

Main Headlines

US secretary of state Antony Blinken says Washington will stay focused on China as the most serious threat to the international order despite Russia’s invasion of Ukraine. In the first broad articulation of the Biden administration’s policy toward Beijing, Blinken said China was the only country with the intent and capabilities to reshape the international order and that it was doing so in a way that would undermine global stability. “Beijing’s vision would move us away from the universal values that have sustained so much of the world’s progress over the past 75 years,” Blinken said. Blinken’s speech came as US-China relations are at their worst since the countries normalised diplomatic relations in 1979. In recent months, ties have been strained by Beijing’s refusal to condemn Moscow’s invasion of Ukraine and by its growing military ties with Russia.

North Sea oil and gas operators including BP have hit back at Rishi Sunak’s £5bn windfall tax on the sector, warning it was a “multiyear” assault on their profits that would “drive away investors” and cut production. Sunak turned his sights on “extraordinary” profits in the energy sector to help pay for a £15bn package to help UK households cope with rising domestic fuel bills, to the dismay of oil bosses and right-wing Tory MPs. After having repeatedly rejected Labour’s call for a windfall tax, Sunak announced a 25 per cent “energy profit levy” that will increase the rate paid by North Sea producers from 40 per cent to 65 per cent, raising £5bn this year. The chancellor caused dismay in the sector by announcing in the small print that the windfall tax would remain until December 2025, unless oil and gas prices “return to historically more normal levels” in the meantime.


Sterling is well bid against most major currencies overnight. Britain will sign its first state-level trade agreement with the US corn belt state of Indiana today, with more to come as London eyes ways to expand commercial ties despite Washington’s decision to halt talks on a national-level free trade deal. The BBC has unveiled plans to pare back its output, shutting two television channels and axing 1,000 jobs in a bid to cope with inflation and the squeeze on its licence fee funding. The restructuring, which is aimed at saving £200mn annually, marks a turning point for the 100-year-old corporation and is the first indication of how director-general Tim Davie is looking to reshape the BBC for an era of austerity and “digital-first” programming. The UK markets regulator has set out plans to simplify listing on London’s stock exchange to attract more fast-growing tech groups and start-ups in the face of increased competition from cities in the US and EU.


Euro is stronger against the dollar and weaker against sterling this morning. Turkey’s foreign minister warned Greece against exceeding limits on military forces allowed on islands in the Aegean Sea, as the US urged the NATO allies to step back from a recent escalation in tensions. Ankara also said future cross-border military operations will target terrorists, signalling it’s near a fresh incursion into Syria against Kurdish forces backed by the US. Italian unions have called a four-hour strike for Ryanair workers in the country, lamenting a reduction in compensation and tough labour conditions at Europe’s biggest budget airline. Spanish health authorities reported 25 new cases of monkeypox as of yesterday, bringing the total tally of infections to 84. German Chancellor Olaf Scholz said yesterday he would not accept a “dictated peace” in Ukraine borne out of “imperialism,” and insisted Germany was a reliable partner in the struggle against Russian aggression.


The dollar is weaker than most major currencies in the early morning trade. A colossal 83 percent of Americans think the country is headed in the wrong direction, as high gas prices, a baby formula shortage and collapsing stock markets threaten a Democratic wipe-out in November’s midterm elections. Meanwhile, the US Food and Drug Administration said it has expanded its collaboration with Danone’s Nutricia business to boost supplies of specialized medical baby formula bottles to address its shortage among infants with certain allergies or critical health conditions. The health regulator said about 500,000 additional cans manufactured by Danone would be sent to the United States. US consumers still largely expect the current inflationary shock to be temporary, and for price gains to be low and stable in the longer run, according to a report released yesterday by the Federal Reserve Bank of New York.


Stocks in Asia were buoyed this morning by better-than-expected earnings at Chinese technology companies. The dollar dropped. An MSCI Inc. gauge of Asia-Pacific shares gained for the first day in four and was on track for its second weekly advance. US and European futures wavered. Shares climbed on Wall Street yesterday on signs consumers remain resilient despite inflationary pressures. The dollar extended a slide, with a gauge of the currency versus major peers down almost 3% from a May 12 peak. Treasury yields were steady. Oil was holding near $114 a barrel after being bolstered by the broad-based market rally and on signs of declines in US stockpiles. Copper and aluminium stabilized after leading a slide in metals on concerns China’s slowdown will sap demand. Policy makers are grappling with how to balance controlling a virus outbreak with boosting flagging economic growth.

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

9:00 a.m. Spain April retail sales
10:00 a.m.: Euro-Area April M3 money supply
1:35 p.m.: ECB’s Lane speaks
2:30 p.m.: US April personal income and spending, core PCE deflator
7:00 p.m.: Baker Hughes US rig count
NATO Parliamentary Assembly in Lithuania

Corporate Events

Earnings include Pinduoduo


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