Morning Report – Thursday 2 March

Jon Robson, Head of Trading

“The dollar has rebounded from lows on predictions of a rapid economic recovery in the US as the vaccination rollout continues at pace. Expectations that the US Federal Reserve will display tolerance for higher bond yields have consolidated gains.”

Main Headlines

Amid a loosening of restrictions, the head of the US Centers for Disease Control and Prevention has expressed concern over recent Covid-19 data in the US, warning that a potential “fourth surge”, prompted by the spread of more contagious variants, could threaten to undermine the country’s vaccination progress.

Rishi Sunak is expected to publish a review by Lord Hill, the former EU financial services commissioner, alongside the budget in a bid to create a new stock market listings regime that will make the UK more attractive to fast-growth companies. The move comes as pressure mounts for London to compete post-Brexit with Frankfurt, New York, and Amsterdam, and the FCA has appointed Claire Cole, Director of market oversight, to lead the regulator’s response to the review. In Wednesday’s Budget, Sunak is further expected to announce over £400m in additional support for the UK’s hard-hit culture sector ahead of an easing of restrictions.

GBP

Sterling is lower against the dollar and holding steady against the euro in the early morning trade. A new study from Public Health England suggests that a single dose of the Pfizer or AstraZeneca vaccine reduces the risk of hospitalisation by 80%, following similar findings published by Scottish health authorities last week. Meanwhile, ministers and officials expect that new unemployment forecasts by the independent Office for Budget Responsibility will be improved.

EUR

The euro is weaker against the dollar and mostly unchanged against the pound overnight. The European Commission announced proposals for a vaccination passport scheme with Ursula von der Leyen hoping that a “digital green pass” could foster international travel and boost tourism by the end of June. Elsewhere, Chancellor Angela Merkel is under pressure to provide a clear route out of lockdown following calls from senior officials for a faster reopening of Germany’s economy as the country continues to struggle with the spread of aggressive strains of the virus and retail sales tumbled in January. Olaf Scholz, the Finance Minister and the SPD candidate to succeed Merkel, has lent his support to proposals to increase testing and change metrics used to determine a loosening of restrictions.

USD

The dollar is making gains against most majors this morning. President Biden yesterday met with the Mexican President, issuing a joint declaration promising cooperation on migration issues, as Biden faces pressure from both liberal Democrats and Republicans over existing immigration policy. The White House has indicated that Biden may not attend the June G7 summit in the UK if Covid-19 restrictions remain in place.

Markets

Most Asian stocks slipped Tuesday along with U.S. and European equity futures as investors weighed the impact of the recent climb in bond yields. Shares in China and Hong Kong led the regional decline. Elsewhere, S&P 500 and Nasdaq 100 futures turned lower. China is “very worried” about bubbles in overseas financial markets, China Banking and Insurance Regulatory Commission Chairman Guo Shuqing said at a briefing. Treasury yields were steady. Oil retreated to trade just below $60 a barrel ahead of a key OPEC+ meeting this week. Gold slid.

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

9:00 a.m.: Spain Feb. Unemployment

9:55 a.m.: Germany Feb. Unemployment

10:30 a.m.: Spain sells bills

11:00 a.m.: Euro-Area Feb. CPI

11:00 a.m.: U.K. sells bonds

12:30 p.m.: U.K. sells bonds, ESM sells bills

2:40 p.m.: ECB’s Panetta speaks

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