Morning Report – Friday 5th June

Main Headlines

British and EU negotiators have made little progress this week as negotiations over the future trade deal remain deadlock. The two sides remain far apart on crucial issues such as measures to ensure a level competing field and U.K. fishing waters. The final negotiating round is due to conclude formally today. Boris Johnson and European Commission President Ursula von der Leyen may have to intervene directly to break the deadlock when they hold talks later this month.

OPEC+ is making progress with Saudi Arabia and Russia reaching a tentative deal with holdout member Iraq. The duo pushed Baghdad to stop shirking its share of cuts and even to compensate for failure to comply with reductions in the past. The cartel could meet as soon as this weekend to sign off on the extension for record production cuts.

Global investors continued to pile into equities with Asian stocks heading for another week of strong gains and European futures rising along with their American counterparts. Oil recovered from earlier losses. Treasuries held losses and gold dropped. The euro took a break after surging following the ECB’s bigger-than-expected boost to its emergency bond-buying program.

GBP

Sterling fell against the euro on Thursday after the European Central Bank approved a larger expansion of its stimulus package but has held onto gains versus a weakening dollar. The pound is likely to be driven by the ongoing Brexit negotiations happening this week and by the late June deadline by which Britain needs to say whether it wants an extension of the transition period. Concerns that Britain will exit the European Union without a trade deal at the end of the year could cause some headwind in the coming weeks for the pound as a no deal Brexit is almost certainly not priced in as yet.

EUR

The euro has held on to big gains in early trading this morning after the ECB increased its emergency bond purchase scheme by 600 billion euros to 1.35 trillion and extended the scheme to mid-2021. Markets had expected an expansion of 500 billion euros. The euro’s gains supported appetite for riskier currencies in Asia and is going to post a third straight week of gains.

USD

The dollar index is on course for its third consecutive week of losses and is near its lowest in nearly three months. Unwinding bets on safe-haven currencies reflected broad optimism in financial markets as easing social distancing restrictions supported economic recovery hopes. The U.S. weekly jobless claims report showed the number of Americans filing for benefits dropped below 2 million last week for the first time since mid-March, even though that is still three times larger than their peak during the global financial crisis. Official U.S. employment data due later today is expected to show nonfarm payrolls fell by 8 million in May after a record 20.54 million plunge in April.

CHF

The Swiss franc has continued to weaken against risk currencies as global sentiment improves and demand for safe havens abate. Investors are still looking past the U.S.-China tensions and the civil unrest in the U.S. for now. The SNB intensified its foreign exchange interventions in May and would welcome further franc weakness as the pandemic exerted enormous upward pressure on the franc.

Main Economic Data/Central Banks/Government (ALL TIMES BST)

8:00 a.m.: Germany April Factory Orders
9:00 a.m.: Spain April Industrial Production
10:00 a.m.: Italy April Retail Sales
2:30 p.m.: U.S. May Jobs Report
6:00 p.m.: Russia May CPI

Russia, Turkey sovereign debt rated by Moody’s; Sweden rated by Fitch; Denmark, Germany, Poland rated by DBRS