Morning Report – Monday 17 May

Sam Cornford, Senior FX Dealer said:

“The dollar has bounced on last week’s higher-than-expected inflation data and benefited from a blow delivered to the riskier currencies by a surge of Covid-19 cases in Asia. The greenback’s downward trend will likely resume after the Federal Reserve keeps interest rates low later this week.“

Main Headlines

U.S. retail sales unexpectedly stalled in April, but an acceleration is likely in the coming months amid record savings and a reopening economy. The University of Michigan’s consumer sentiment survey showed on Friday that Americans’ fears of rising inflation are weighing on consumer sentiment. The decline in sentiment comes as a surprise — the rapid vaccine rollout in the US, a further reopening of the economy and the distribution of stimulus cheques had all been expected to boost consumer confidence. The polls also indicated that Americans were starting to shift their spending from goods to services like restaurants and bars.

The bans on international travel and households mixing indoors are relaxed from today in the UK. Boris Johnson urged Britons to take this step out of lockdown “with a heavy dose of caution.” The government is concerned that the virus strain from India could lead to a surge in cases, and is accelerating the vaccine rollout to people aged 35 and over. Chefs, waiters and bartenders needed for everything from fast-food restaurants to fine dining are in short supply, with industry executives and recruiters saying that many of their most experienced people have left for other jobs.

GBP

Sterling is higher against most majors this morning. Lord David Frost, Boris Johnson’s EU minister, has warned Brussels it needs to “rapidly” rethink its approach to post-Brexit Northern Ireland trade rules as the new political leader of the region’s largest party vowed that he “will not rest” until they are torn up. Economists surveyed by Bloomberg predict that the UK will lead the economic recovery among major European nations with its fastest growth in almost half a century before sliding to the bottom of the pack by 2023.

EUR

The euro is weaker versus the pound and unchanged versus the dollar overnight. Ursula von der Leyen is expected to back proposals to establish strategic manufacturing hubs in African countries at a global health summit in Rome on Friday. Over little more than a week, France lifted its travel ban, Spain allowed its six-month old “state of alert” to lapse and Germany eased lockdown. Italy has also steadily loosened restrictions over the past month, with people anticipating returning soon to gyms and indoor pools.

USD

The dollar is weaker against most majors in early morning trade. California is moving into a summer drought that threatens to spark another season of wildfires, as climate change pushes up seasonal temperatures across the nation. Governor Gavin Newsom extended a drought emergency notice originally declared in April to cover an area representing about a third of the state’s population. Elsewhere, House Republicans have voted to place Donald Trump loyalist Elise Stefanik in a leadership post, within a few days after they ousted Liz Cheney from the same job.

Markets

Asian stocks fluctuated Monday amid some spikes in Covid-19 cases, and U.S. equity futures edged lower as inflation concerns weighed further on investor sentiment. Chinese stocks outperformed, shrugging off below-forecast economic readings. While European equity futures were in the green, U.S. contracts slipped, suggesting Friday’s rally on Wall Street after a bruising week may be short-lived. Japan retreated and Taiwan tumbled. The spread of the virus is front and center again in Asia as vaccinations lag the largest developed nations. Treasury yields extended declines from Friday. Most commodities opened the week on a steadier footing after last week’s volatility.

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

10:00 a.m.: Spain March trade balance

10:00 a.m.: Italy April CPI

11:30 a.m.: Germany sells bills

2:50 p.m.: France sells bills

6:00 p.m.: Russia 1Q GDP

Euro-Area finance ministers meet

Paris Peace Forum Spring meeting

England eases lockdown restrictions

Corporate Events

13F deadline

Earnings include Ryanair

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