Morning Report – Monday 22 March

Jon Robson, Head of Trading

“A decline in global risk appetite, prompted by another replacement of the Turkish Central Bank Governor, has temporarily strengthened the dollar. U.S. inflation will be back in the spotlight this week with the release of the PCE deflator for February on Friday. Over the coming months, the PCE deflator will likely strengthen on strong demand fuelled by the U.S. government stimulus checks.”

Main Headlines

The US Federal Reserve has announced that it will let looser capital rules for banks introduced at the start of the pandemic expire at the end of March. The US central bank’s decision could disappoint banks, which had been pushing for an extension of the capital relief. Capital rules were eased last year in a temporary change to the supplementary leverage ratio, and have been the focus of an intense political battle in recent weeks. While Democrats in Congress had argued that the relief from capital rules should be terminated at the end of this month, many Republicans sided with the banks to argue for an extension.

Britain and the EU are poised to agree a new “talking shop” for co-operation on financial services, but the deal will still leave the City of London facing major barriers to trade with the 27-member bloc. The two sides are closing in on an agreement on a memorandum of understanding for their future relationship on the financial sector, aimed at creating “a stable and durable” basis on which to build co-operation. Mairead McGuinness, EU financial services commissioner, said at the weekend she was “very hopeful” the memorandum would be agreed imminently. The commissioner is due to assess progress with Bank of England governor Andrew Bailey in a meeting on Monday.

GBP

Sterling is weaker against the dollar and stronger against the euro this morning. Chancellor Rishi Sunak will wait until the autumn before deciding whether to introduce a UK online sales tax aimed at levelling the playing field between high street and online retailers, according to government officials. Sunak wants to wait until President Joe Biden’s US administration reveals whether it will support efforts to reform global digital tax rules being led by the OECD, the Paris-based organisation.

EUR

The euro is lower against most majors in early morning trading. Economists are cutting growth forecasts for the eurozone economy as a third wave of Covid-19 infections and vaccination delays spur tighter restrictions in several countries including France, Italy and Germany. The reintroduction of lockdown measures across Europe is fuelling concerns that the region could suffer another disappointing summer tourism season if vaccinations do not speed up enough to allow travel restrictions to be eased. France imposed a new four-week lockdown in Paris and several other regions on Friday night after coronavirus infection levels rose to their highest level since November. Italy has announced a fresh lockdown over Easter, while some German cities have rolled back lifting of restrictions that had only recently been eased because of a sharp rise in infections.

USD

The dollar was stronger against other major currencies overnight. The unprecedented effort to manufacture Covid-19 vaccines is disrupting supplies of other critical medicines in the US, including treatments for infectious diseases and injectable drugs that prevent blindness. Pfizer has told US hospitals to expect interruptions to supplies of four of its products — an antibiotic, a steroid and two types of testosterone — according to a letter sent last month. The drugs are “biologic” medicines that are administered by injection or infusion. They require some of the same ingredients and manufacturing capacity as the Covid-19 vaccine that Pfizer has co-developed with Germany’s BioNTech.

Markets

Nasdaq 100 futures rose and Asian stocks fluctuated as investors evaluated a pullback in Treasury yields at the start of the week. Turkey’s lira tumbled after the country’s central bank governor was ousted. S&P 500 contracts and European futures dipped after Asian shares posted a mixed performance, with Chinese stocks rallying and Japanese equities sliding. Oil was steady after a bruising week. The Turkish lira slumped as much as 15% and stocks slid after President Recep Tayyip Erdogan removed the country’s third central bank chief in less than two years. The nation said it will continue to stick to free markets and a liberal foreign-exchange regime. The 10-year U.S. Treasury yield fell back to 1.66% from the highest levels in about 14 months following soothing comments from Federal Reserve officials. A slate of auctions this week could be a catalyst for a renewed rise in rates.

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

7:25 a.m.: SNB 2020 report published

10:00 a.m.: ECB Jan. Current Account

10:30 a.m.: Italy Jan. Current Account

11:30 a.m.: Germany sells bills

2:00 p.m.: ECB’s Weidmann speaks

2:50 p.m.: France sells bills

4:15 p.m.: ECB’s Schnabel chairs lecture

4:30 p.m.: ECB’s De Cos speaks

Germany’s Merkel meets regional leaders

Africa finance ministers meet

BIS holds Innovation Summit through March 25

Corporate Events

Earnings include Aramco, Kingfisher

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