Morning Report – Thursday 25 February

Jon Robson, Head of Trading

“The dollar’s struggles continue as the safe-haven greenback approaches three-year lows following dovish signals from Jerome Powell. The Federal Reserve is unlikely to adjust monetary policy in the near-term, leading to reflation bets on an upswing in economic activity.”

Main Headlines

Food and Drug Administration studies indicated that Johnson & Johnson’s single-shot vaccine works well, providing strong protection against severe disease and death from Covid-19. The FDA is expected to authorise the vaccine as early as Saturday with distribution beginning shortly after, in what would be a significant boost to the US rollout programme.  In the United States, the vaccine was found to have a 72 percent overall efficacy rate and 86 percent efficacy against severe forms of Covid-19.

As speculation mounts over what will be covered in the budget next week, Rishi Sunak is expected to announce a significant hike in corporate tax rates, keeping the UK’s business taxes competitive with other G7 countries and generating extra revenue as Britain turns to a post-pandemic recovery. It is anticipated that the Chancellor will argue that the US is considering a similar move after Biden’s election. The Resolution Foundation has urged Sunak to provide a £100 billion fiscal package on top of existing Covid-19 support measures to help the UK tackle its worst recession in 300 years.

GBP

Sterling continues to make gains against the dollar but is weaker against the euro this morning. Andrew Bailey, the Governor of the Bank of England, has warned that the EU risks “a serious escalation” in tensions with London if Brussels moves the clearing of all-euro-denominated derivatives from Britain, underlining the sensitivity of post-Brexit financial services arrangements.

EUR

The euro is higher against other major currencies in the early morning trade. After grappling with well-reported problems on procurement and supply, France, Germany and Italy are under growing pressure to accelerate their vaccination programmes as other EU nations pull ahead with ambitious targets and more efficient rollouts. Elsewhere, a row has emerged between Germany’s coalition parties over the appointment of the chair of the council of economic experts, signalling a rise in tension ahead of September’s Bundestag elections and exposing the deep ideological differences between the CDU and SPD.

USD

The dollar is weaker against most majors overnight. The Federal Reserve systems, which Americans rely on to process millions of financial transactions daily, was disrupted by an outage for four hours. The outage follows two significant disruptions to the Federal Reserve’s payment services in 2019 and raised concerns about the resilience of the infrastructure. The US president signed an executive order on Wednesday requiring federal agencies to conduct 100-day reviews of supply chains for semiconductors, pharmaceuticals, electric vehicle batteries and critical minerals used in manufacturing products such as cars and weapons.

Markets

Bonds sold off and Asian stocks rallied as investors focused on the prospects of a stronger-than-expected recovery. The 10-year Treasury yield climbed to the highest in a year, while Japan’s longer-dated benchmarks rose to multiyear records. Australian yields jumped and stocks rose across the region, led by Hong Kong and South Korea. Earlier, the S&P 500 closed the U.S. session higher despite weakness in tech shares. Crude oil remained close to a one-year peak and base metals advanced on the recovery optimism. Gold slipped.

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

8:00 a.m.: Germany March GfK Consumer Confidence

8:00 a.m.: Turkey Feb. Economic Confidence

8:45 a.m.: France Feb. Consumer Confidence

9:00 a.m.: Sweden Feb. Economic Tendency Survey

9:00 a.m.: Spain Jan. PPI

9:30 a.m.: Sweden Jan. Household Lending

10:00 a.m.: Euro-area Jan. M3 Money Supply

10:00 a.m.: Italy Feb. Consumer, Manufacturing Confidence

11:00 a.m.: Euro-area Feb. F Consumer, Economic Confidence

11:00 a.m.: Italy sells bonds

11:45 a.m.: ECB’s Lane participates in Webinar

2:00 p.m.: Russia Feb. 19 Gold and Forex Reserve

3:00  p.m.: EU Summit

4:00 p.m.: ECB’s Guindos, Pablo Hernández de Cos speak

5:00 p.m.: Russia Weekly CPI

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