Morning Report – Friday 5 March

Jon Robson, Head of Trading

“The dollar’s temporary strength reflects other countries’ yields not keeping pace with the U.S., which is making the dollar more attractive. Still, a continued global recovery will likely prompt a dollar selloff as market participants pursue risk and higher returns elsewhere.”

Main Headlines

Vice President Kamala Harris broke a tie in the US Senate on Thursday which split along party lines over whether to proceed with a debate on Joe Biden’s $1.9tn coronavirus relief package. All 50 Senate Republicans voted against moving ahead with the stimulus package, necessitating a tiebreaking vote from Harris, which started the formal consideration of the bill. Meanwhile, Federal Reserve chair Jay Powell triggered a sudden sell-off in long-term US Treasury debt and equities after he vowed to keep monetary policy steady even as the economy improves and inflation begins to rise.

UK government ministers are set to triple the cap on the size of Covid-19 grants companies can access after criticism that the government was still following EU state-aid rules months after the Brexit transition period ended. Some large companies, including high street retailers, complained they had been locked out of the £4.6bn emergency coronavirus grant scheme announced in January because the UK was still applying temporary EU measures.

GBP

Sterling is weaker against other major currencies this morning. The House of Commons Public Accounts Committee has criticised the government for having “no co-ordinated plan” for achieving its goal of net zero greenhouse gas emissions by 2050, in a public rebuke ahead of the UK-hosted international climate summit in November. Meg Hillier, Chair of the PAC, said: “Government has set itself a huge test in committing the UK to a net zero economy by 2050 — but there is little sign that it understands how to get there and almost two years later it still has no plan”.

EUR

The euro is lower versus the dollar and slightly higher against the pound in early morning trading. Brussels’ Brexit chief has warned that the EU will launch legal action against the UK “very soon” in response to British plans to unilaterally grant Northern Irish businesses longer waivers from trading rules agreed by the two sides. Maros Sefcovic, the EU commissioner in charge of overseeing the trade deal, said the decisions announced by the UK government on Wednesday had been a “very negative surprise”, and that the EU Commission was working “infringement proceedings” against the UK.

USD

The dollar is stronger against most majors overnight. New claims for unemployment benefits rose to 745,000 last week as the pandemic continued to weigh on the US labour market even while some coronavirus restrictions were eased. The small increase came after last week’s jobless claims fell to their lowest level in three months, when severe winter weather hit Texas, the second-most populous American state, and much of the central US, and may have affected new filings.

Markets

The S&P 500 briefly erased its 2021 gains, notching its lowest close in about five weeks. Benchmark 10-year bond rates topped 1.5% and the dollar climbed. The Nasdaq 100 extended losses from a February peak to almost 10%, and the Russell 2000 of small caps slid 2.8%. Reddit users appeared to rush back into GameStop Corp., with the video-game retailer soaring. Elsewhere, Bitcoin’s appeal as a hedge against inflation was put to the test, with the largest cryptocurrency joining a slump in other risk assets. Oil surged after the OPEC+ alliance surprised traders with its decision to keep output unchanged, signaling a tighter crude market in the months ahead. Gold fell 0.8% to $1,698.21 an ounce.

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

8:45 a.m.: France Jan. Trade

10:00 a.m.: Italy Jan. Retail Sales

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

2:30 p.m.: U.S. Feb. Jobs Report

3:00 p.m.: BOE’s Haskel speaks

5:00 p.m.: Russia Feb. CPI

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

Spain’s sovereign debt rated by Moody’s and DBRS

Corporate Events

Earnings include LSE, Dassault Aviation

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