May 4, 2022

“Global equity markets edged higher and 10-year US treasury yields slid from the 3% level as cautious investors expect the Federal Reserve to hike rates by 50bps today – an increase that would mark the biggest hike since 2000.”

Tim Hallinan – Trading Director

Main Headlines

A record 4.5mn US workers quit the labour force in March, while the number of job openings hit a high of 11.5mn, underscoring employers’ struggles to fill positions as inflation ripples through the economy. Government data released yesterday showed the Great Resignation was gaining momentum as the US recovers from the coronavirus pandemic, giving workers additional leverage with businesses. The rising number of job openings and voluntary resignations have forced companies desperate for employees to raise wages and sweeten incentives to lure workers away from their old jobs – which, in turn, has encouraged even more employees to quit their current posts. The figures for both job openings and workers quitting were the highest since the US labour department began collecting the data in December 2000.

Inflationary pressures have begun to take their toll on British manufacturers, as Brexit, rising energy costs, supply chain disruption and the war in Ukraine continue to bite. A closely watched survey released yesterday showed that about 85 per cent of British manufacturers registered an increase in purchase prices, with a majority of businesses passing on these costs to consumers. Despite these challenges, the final reading of the British manufacturers’ purchasing manager’s index, compiled by S&P Global, rose to 55.8 in April, up from 55.2 in March. According to Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, the small rise in the headline index was attributable to a “rise in the output index, as a previous easing of supply chain disruption enabled firms to work through order backlogs.”

GBP

Sterling is stronger against euro and weaker against the dollar this morning. Pay for financial services workers in the UK has surged at double the pace for the rest of the economy since the pandemic began, widening inequality at a time when consumer spending power is being squeezed. Boris Johnson on Tuesday admitted that the government “can do more” to help families struggling with the cost-of-living crisis but warned that a big new support package risked pushing up inflation and interest rates. Sir Keir Starmer, leader of the opposition Labour party, has dismissed claims that he broke Covid rules last year as political mudslinging as Conservative MPs stepped up their questions about a Labour gathering in Durham last April. Fund network Calastone said this morning that UK-focused equity funds saw record outflows of 836 million pounds in April due to a weak economic outlook for Britain

EUR

Euro is weaker than most major currencies in the early morning trade. Eurozone borrowing prices have surged to multiyear highs because the European Central Financial institution reins in its stimulus programmes, underscoring the problem for policymakers in attempting to cool inflation without upending bond markets. Italian Prime Minister Mario Draghi has said the European Union needs to emerge stronger from the historic challenges thrown up by the war in Ukraine, including by expanding eastwards. The European Commission, the executive arm of the EU, on Wednesday put forward new sanctions against the Kremlin which will include a six-month phase out of Russian crude imports. Meanwhile, China’s independent refiners have been discreetly buying Russian oil at steep discounts as western countries suspend their own purchases and explore potential embargoes because of the war in Ukraine.

USD

The dollar is well bid against most major currencies overnight. A drilling boom in America’s oil heartlands has triggered a sharp reversal of fortunes for the country’s long-suffering oilfield services groups as they reap the rewards of the scramble to pump more crude. Many producers have rushed to open the taps to capitalise on soaring oil prices since Russia’s invasion of Ukraine, ratcheting up demand for the companies that drill and frack new wells. HSBC is moving its US headquarters to a new Tishman Speyer-developed tower on the west side of Manhattan, joining a flight of tenants to top-tier office space outside of the island’s central Midtown office district. Author JD Vance won the Senate Republican primary in Ohio yesterday, securing a victory after receiving Donald Trump’s endorsement in the hotly contested race.

Markets

Bonds fell this morning and US equity futures were little changed as investors braced for the biggest Federal Reserve interest rate-hike since 2000 and awaited more clues on how aggressively it will tackle inflation. Miners led a drop in Europe’s Stoxx 600 Index, while Russia’s MOEX Index reversed earlier gains after the European Union planned to ban Russian crude oil over the next six months and refined fuels by the end of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine. The EU is also proposing to cut off Sberbank and other lenders from the international SWIFT payment system. Treasuries were steady at the European open, with the 10-year yield nudging 3%. The Fed is expected to raise rates by 50 basis points today and detail plans for the reduction of its balance sheet.

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

8:00 a.m.: Russia April S&P PMI
8:00 a.m.: Germany March trade balance
8:30 a.m.: Riksbank’s Breman speaks
8:30 a.m.: Sweden April Swedbank/Silf PMI
9:15 a.m.: Spain April S&P PMI
9:45 a.m.: Italy April S&P PMI
9:50 a.m.: France April S&P PMI
9:55 a.m.: Germany April S&P PMI
10:00 a.m.: Bank of Finland press conference on financial stability
10:00 a.m.: Hungarian central bank briefing on green finance
10:00 a.m.: Eurozone April S&P PMI
10:30 a.m.: U.K. March Mortgage Approvals
10:30 a.m.: Iceland rate decision
11:00 a.m.: Eurozone March retail sales

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