Morning Report – Friday 12th March

Jon Robson, Head of Trading

“The U.S. dollar rallied back from a near one-week low on Friday as bond yields inched higher, before edging lower as riskier currencies draw support from calmer market sentiment. Next week, the focus will be on the Federal Reserve’s policy meeting after Powell refrained from raising concerns about higher bond yields earlier this month.”

Main Headlines

US president Joe Biden has signed a $1.9tn stimulus package into law, enacting his top legislative goal for first months in office to deliver a fiscal jolt to the American economy. The president’s signature, a day after the House of Representatives voted to pass the final version of the legislation in Congress, will allow the US administration to rapidly implement the stimulus over the coming weeks. The legislation includes $1,400 direct payments to Americans earning $75,000 a year or less. The cheques could result in a big increase in consumer spending as early as April.

Giving evidence to the House of Commons Treasury committee on the Budget he had outlined last week, Rishi Sunak said it was too soon to tell how much long-term damage the economy would sustain from the coronavirus pandemic. Alongside inflation, another big threat to the UK’s fiscal outlook is the risk that a long-term decline in interest rates — which has allowed governments to increase borrowing at much lower cost than in the past — might go into reverse.

GBP

The pound is weaker against the dollar and stronger against the euro overnight. The Treasury is drawing up plans to overhaul rules that have tightly governed London’s capital markets, looking to counter fears that the City is losing its place as a global financial centre after Brexit. The proposals are expected to largely target Mifid II, the EU’s main financial services legislation, that set tough and often prescriptive rules to improve markets after the 2008 crisis. Ministers are also planning a more wide-ranging review of UK financial markets rules to discard other EU standards and improve the City’s competitiveness against global rivals.

EUR

The euro was bid lower against other majors in early morning trading. The European Central Bank said it would step up its bond-purchase stimulus to support an economy whose recovery is expected to lag a year behind the rebound in the US, held back by slow vaccine rollouts and less relief spending by governments. The central bank for the 19 countries that use the euro said Thursday that over the next quarter the purchases would be conducted “at a significantly higher pace than during the first months of the year”.

USD

The dollar is weaker versus most other major currencies this morning. Initial jobless claims in the US fell last week to their lowest level since November, in a sign that lay-offs have slowed as some states roll back coronavirus restrictions. New unemployment filings totalled a seasonally adjusted 712,000, compared with 754,000 in the previous week, the US Department of Labour said on Thursday. Economists had forecast a smaller decline to 725,000 initial claims.

Markets

U.S. stocks jumped to an all-time high, powered by a renewed rally in tech shares as investors eye a $1.9 trillion spending injection from the federal government. The S&P 500 reclaimed a record in a broad rally led by tech and consumer discretionary shares. The Nasdaq 100 Index surged more than 2.5% as it continued to rebound from a rout that had taken it 11% below its February record. Chipmakers paced the tech advance. The 10-year Treasury yield pared an increase after an auction of 30-year notes. Risk assets resumed their broad rally with vaccinations rolling out around the world and the U.S. poised to notch economic growth not seen since the 1980s. Elsewhere in markets, German 10-year bond yields declined and the Stoxx 600 Index gained after the European Central Bank indicated it will step up the pace of bond purchases. Copper climbed above $9,000 a ton in London and oil advanced.

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

8:00 a.m.: U.K. Jan. Industrial, Manufacturing Production, Trade, Monthly GDP

8:00 a.m.: Turkey Jan. Industrial Production

8:00 a.m.: Germany Feb. CPI

9:00 a.m.: Spain Jan. Retail Sales, Feb. CPI

10:00 a.m.: Italy 4Q Unemployment

11:00 a.m.: Euro-Area Jan. Industrial Production

12:00 p.m.: U.K. sells bills

2:00 p.m.: Russia Jan. Trade

7:00 p.m.: Baker Hughes U.S. Rig Count

Corporate Events

Earnings including EssilorLuxottica, Fortum

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