Morning Report – Monday 18th May

Main Headlines

US tech giant Salesforce is moving European sales out of Britain due to Brexit pound movements. It said changes in the pound last year had cost the company £65m. Salesforce’s European business accounts for a fifth of its $17bn in annual revenue, and sales have historically been recorded in pounds at its UK headquarters before being converted to dollars.

Fed Chairman Jerome Powell warned the recovery could stretch through the end of 2021. “Assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year,” he said in an interview conducted Wednesday that aired yesterday on CBS. “For the economy to fully recover people will have to be fully confident, and that may have to await the arrival of a vaccine.”

It has been a better start to the week for risk assets as European and U.S. stock futures rallied on signs of businesses reopening across major economies and oil’s rally above $30 for the first time in two months. Asian markets also moved higher. The pound dipped after a BOE official said the central bank is examining unconventional policy tools, including negative rates. Gold rose with base metals.

Softbank said its Vision Fund business lost $17.7 billion last fiscal year after writing down the value of investments, including WeWork and Uber. SoftBank founder Masayoshi Son’s $100 billion Vision Fund went from the group’s main contributor to profit a year ago to its biggest drag on earnings.

In 13F filings, Warren Buffett is getting out of Goldman Sachs. Berkshire Hathaway sold off 84% of its long time stake in the bank in the first quarter. The company also slashed its investment in JPMorgan, and exited its bets on Travelers Cos. and Phillips 66. PNC Financial was the only banking stock it increased its stake in.

GBP

Boris Johnson, writing in the Mail on Sunday, warned that Britain may not be free of the virus for some time, though other sources reported the PM wants to get back to near-normality by July. Chancellor Rishi Sunak fields questions from lawmakers today on how the nation will fund the steps needed to jump start the economy. BOE Chief Economist Andy Haldane told the Telegraph the bank is discussing options including negative interest rates. It is already a formality that the MPC will ease policy again however, the mix of additional bond buying and negative rates could impact on sterling. It is the re-emergence of a potential Brexit deadlock, as a result of the transition period ending without a deal, is the biggest issue weighing on the pound.

EUR

Italy’s debts are at risk of becoming unmanageable. The creeping rise in borrowing costs, despite extreme support from the European Central Bank, suggests private lenders are getting nervous. The Governing Council and other EU leaders will have to decide if they are willing to allow a much larger transfer of the country’s liabilities to their balance sheets or to let Italy go bust. Italy is set for an eye-watering rise of its debt-to-GDP ratio to 158% in 2021 from 135% in 2019. Italy’s dismal economic performance, which is set to get worse as the nation’s leaders struggle to deal with the fallout from the coronavirus, puts the country’s ability to service its debts in doubt.

USD

Jerome Powell must perform a high stakes balancing act this week when he’s expected to urge U.S. lawmakers to back more spending for an economy reeling from the impact of the coronavirus pandemic. The Federal Reserve chairman is scheduled to appear via video conference along with Treasury Secretary before the Senate Banking Committee tomorrow. More than 36 million Americans have lost their jobs since February. Countless companies, especially small businesses, are heading toward bankruptcy, while states and cities are confronting gaping budget shortfalls that could provoke a massive second wave of layoffs from the public sector. Government data showed U.S. retail sales plunging in April, shattering the prior record set just a month earlier.

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

• 10:30 a.m.: Germany sells bills
• 11:00 p.m.: ECB’s de Cos appears before Spanish parliament
• 1:50 p.m.: France sells bills
• 4:00 p.m.: BOE’s Tenreyro speaks

Corporate Events

Earnings include Ryanair, Telecom Italia