Morning Report – Friday 7 May

Jon Robson, Head of Trading

“The dollar price is somewhat at the mercy of today’s US employment report, with the currency under pressure from high growth expectations and a corresponding risk-on appetite. The Bank of England is starting to consider unwinding stimulus, which would prop the pound against the currencies backed by accommodative central banks.”

Main Headline

The US Federal Reserve has warned that a rising appetite for risk across asset markets is stretching valuations and creating vulnerabilities in the US financial system. In this environment, prices may be vulnerable to “significant declines” should risk appetite fall, the Fed announced in its semi-annual financial stability report released yesterday. It acknowledged that regulators lack the tools to monitor the risk taking of traders like Bill Hwang, who placed large leveraged bets on stocks through his Archegos family office.

Boris Johnson’s Conservatives have secured a crushing victory in the parliamentary seat of Hartlepool, in a result that confirmed the Tories’ advance across working class England. Hartlepool had voted Labour every time since the seat’s creation in 1974. The victory marks another Tory gain in a former Labour heartland, adding to the so-called Red Wall seats that gave Johnson a big general election victory in 2019. The Conservatives won 15,529 votes, compared to 8,589 votes for Labour. It is extremely rare for the ruling party to gain seats from the opposition at a by-election.

GBP

Sterling is higher against most major currencies this morning. The U.K. plans to offer under-40s an alternative to the AstraZeneca vaccine because of concerns about blood clots. The precautionary measure comes just as authorities prepare to open up the inoculation program to the under 40s, after the over 40s where invited to book their first shots this week. The Bank of England expects the biggest surge in household spending since 1988 to help power a strong economic rebound after the pandemic.

EUR

The euro is lower versus most majors overnight. Investors are turning against German government bonds, sparking predictions that decades of stunning gains for Europe’s ultimate safe asset is at an end. Brussels has accused Britain of breaking the newly ratified EU-UK trade deal after French fishermen staged a seaborne protest outside Jersey’s main port over an escalating row over fishing rights that prompted London to send two naval vessels to the area.

USD

The dollar is lower against the pound and higher against the euro in early morning trade. The US has backed a temporary suspension of intellectual property rights for Covid-19 vaccines, in a change of tack that rattled drugmakers and sent their shares down. Meanwhile, the Biden administration is likely to maintain pressure on China by preserving limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump.

Markets

Stocks headed higher and commodities extended their advance ahead of U.S. jobs data that are expected to cap a series of strong economic reports this week. Copper soared to an all-time record on expectations that rebounding economies will spur a boom in global demand, and the Bloomberg Commodity Spot Index jumped to its highest level since 2011. Taiwan and South Korea led modest gains across Asian equities that lifted MSCI Inc.’s regional gauge. European futures rallied along with U.S. contracts. U.S. economic reports helped sentiment, as applications for state unemployment insurance fell to a fresh pandemic low, and separate data showed a rebound in productivity. Traders now turn to Friday’s payrolls numbers, which expected to show a million jobs added in April. Treasuries held steady. Elsewhere, spot iron ore broke $200 a ton for the first time, and oil climbed above $65 a barrel.

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

8:45 a.m.: France March industrial, manufacturing production, trade

9:00 a.m.: Spain March industrial production

10:00 a.m.: Italy March retail sales

10:30 a.m.: U.K. construction PMI

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

12:00 p.m.: ECB’s Lagarde speaks

1:15 p.m.: BOE’s Broadbent, Haldane speak

2:30 p.m.: U.S. April jobs report

6:00 p.m.: Russia April CPI

7:00 p.m.: Baker Hughes U.S. rig count

Italy sovereign debt rated by Moody’s, France rated by Fitch

EU leaders meet in Porto, Portugal

UN Security Council virtual meeting

Corporate Events

Earnings include Cigna

 

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