Morning Report – Thursday 21st May

Main Headlines

AstraZeneca received more than $1 billion in U.S. funding to develop a Covid-19 vaccine from the University of Oxford and said it has supply agreements for 400 million doses. The U.K. drug maker received the money from the U.S. Biomedical Advanced Research and Development Authority and has secured capacity to make 1 billion doses, according to a statement from the Cambridge, England-based company.

The White House critiqued Beijing’s economic and military policies in a report to Congress, outlining familiar issues such as intellectual property theft and economic protectionism, but did not detail specific actions the U.S. will enforce. President Trump escalated a war of words with Beijing, accusing Xi Jinping of being behind a “disinformation and propaganda attack” on the U.S. Earlier, the Senate approved a bill that could lead to Chinese companies being barred from listing on U.S. exchanges.

More monetary easing may come today. For the first time since December, economists unanimously predict Turkey’s central bank will lower rates which would be the ninth straight cut. The same is expected from South African Reserve Bank trimming after price growth expectations fell to a record low this week.

U.S. and European stock futures fell and Asian equities erased gains after Trump escalated his rhetoric against China. Treasuries edged up. Oil extended gains with WTI crude approaching $34 a barrel. Base metals rose, while gold dropped.

Fed officials saw the pandemic posing “an extraordinary amount of uncertainty” to both the economy and financial stability. Officials were also concerned that banks face more stress, according to minutes from last month’s meeting. The report underscored Jerome Powell’s gloomy assessment that the government must do more to mitigate the fallout.

Lufthansa confirmed advanced talks for 9 billion euros of state aid in return for handing a 20% stake to Germany’s Economic Stabilization Fund. The package would include a 3 billion euro loan. “A decision can be expected shortly,” Chancellor Angela Merkel said late last night. The European Commission would need to approve a deal.

GBP

Inflation slowed sharply in April thanks to lower energy costs. Price gains are likely to be limited over the summer, although inflation should remain positive. With risks to economic growth and the inflation outlook clearly to the downside, the Bank of England is widely expected to increase its bond buying program by £100 billion pounds in both June and August. CPI inflation fell to 0.8% in April from 1.5% in March. The reading was a touch below below the Bank of England’s forecast of 0.9%.

EUR

The Euro has largely held gains since the announcement of the Franco-German stimulus proposal. As countries embark on spending sprees to cushion the blow from the virus-induced slump, national debt levels are expected to reach stratospheric levels, a worrying prospect for many already deep in the red. That’s revived a long-running debate about whether the EU should turn to debt aggregation, to finance spending where it’s needed most, such as the countries hit hardest by the pandemic.

USD

A gauge of dollar strength advances for first time in four days. Fed officials saw the pandemic posing “an extraordinary amount of uncertainty” to both the economy and financial stability according to minutes of the last FOMC meeting. Officials were also concerned that banks face more stress, according to minutes from last month’s meeting. The report underscored Jerome Powell’s gloomy assessment that the government must do more to mitigate the fallout.

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

• 8:15 a.m.: France May PMIs
• 8:30 a.m.: ECB’s Panetta speaks
• 8:30 a.m.: Germany May PMIs
• 9:00 a.m.: Euro-Area May PMIs
• 9:30 a.m.: U.K. May PMIs
• 12:00 p.m.: Turkey rate decision
• 2:00 p.m.: Russia April Industrial Production
• South Africa rate decision

Corporate Events

• Earnings include Nvidia, Medtronic, Intuit, Cosmo Energy
• Cnooc AGM