Morning Report

Morning Report – Friday 22nd May

Main Headlines

China kicked off its annual meeting of the NPC by declining to provide a GDP forecast. Premier Li Keqiang blamed the pandemic and trade friction for clouding the outlook, though he vowed to implement phase one of the U.S. deal. Beijing aims to create over 9 million urban jobs and cap unemployment in cities around 6%. The 2020 budget deficit will exceed 3.6% of GDP, with defence spending up 6.6%, and the CPI target is 3.5%.

Li has lit the touch paper for renewed turmoil in Hong Kong and in turn increased threat to growth. In the same address, Li said a new law cracking down on dissent would allow the governments in Hong Kong and Macau to “fulfil their constitutional responsibilities,” and Beijing will push ahead with a plan to integrate Hong Kong with others in southern China, a step many locals won’t welcome.

Worries over the future of Hong Kong dragged the Hang Seng more than 5.5% lower, leading declines across the board in Asian equity markets. U.S. and European stock-index futures fell. The yen nudged higher after the BOJ expanded its emergency lending program. Treasuries rose, gold was steady and oil slipped. The rupee plunged and Indian bonds extended gains after the RBI cut its benchmark rate.

The BOJ launched a new lending program worth 30 trillion yen ($279 billion) to support small businesses but refrained from adding major stimulus at an emergency meeting. Officials gathered after price data confirmed what many long suspected: Japan still has a deflation problem. Core CPI registered minus 0.2% in April, the first slide below zero by the key inflation gauge in more than three years.


In light of the recent chatter about negative rates in the U.K., it’s worth noting that the latest BOE data indicate the lowering of the policy rate from 0.75% to 0.1% in March has had only a muted impact on new loan costs. In order for policy makers to even consider such measures, they will need guarantees that the cut would be passed on. The BOE could potentially offer extremely cheap funding to lenders, making its Term Funding Scheme more generous. The U.K. has agreed to buy 10 million coronavirus antibody tests from Roche and Abbott, in a boost to Boris Johnson as he tries to get the economy back on track. The tests will be crucial to aid understanding of how the disease spreads, Health Secretary Matt Hancock said. Separately, Abbott said interim analysis indicates its Covid-19 rapid test, ID NOW, performs best in patients tested early after symptoms start to show.


The Euro zone slump eased in May but was still sharp. The devastating impact of the coronavirus on the euro zone economy abated a little this month as some government-imposed lockdown measures were eased. Concerns still remain about some member states such as Italy and Spain which are weighing on the currency. Both are stepping up bond sales to fund the surge in spending needed to shore up their pandemic-battered economies.


Jerome Powell warned that the pandemic is hitting the most vulnerable people the hardest. “While the burden is widespread, it is not evenly spread,” the Fed chairman said. “Those taking the brunt of the fallout are those least able to bear it.” Vice Chairman Richard Clarida added his voice to those saying the U.S. may need to deploy more tools from all policy realms. “Additional support from both monetary and fiscal policies may be called for,” he said. The dollar gained against major peers this morning as worries about rising diplomatic tensions between the United States and China supported safe-haven demand for the greenback.

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

  • 7:00 a.m.: U.K. April retail sales, public finances
  • 12:30 p.m.: ECB minutes
  • 3:30 p.m.: ECB’s Lane speaks

Corporate Events

  • Earnings include Alibaba, Deere, United Utilities, Burberry