Morning report – Thursday 25 March

Jon Robson, Head of Trading

“The safe-haven dollar continues to benefit from the deteriorating outlook in Europe and emerging markets. Market sentiment was improved by the decline in longer-term US Treasury yields from last week, as well as by Powell and Yellen telling Congress how confident they are about the recovery however, this had not filtered through to FX markets as yet.”

Main Headlines

Federal Reserve Chairman Jerome Powell indicated Wednesday that he isn’t concerned about a recent rise in long-term bond yields, saying they appear to reflect growing optimism about the economy’s prospects. During testimony to the Senate banking committee, Powell sought to stamp out concerns, raised mainly by Republican lawmakers, that the economy could overheat as a result of Joe Biden’s $1.9tn fiscal stimulus package.

The U.K. may need tougher border measures “very soon” to prevent the arrival of coronavirus variants from continental Europe that risk undermining the country’s vaccine roll-out, Boris Johnson said. The prime minister told the liaison committee of senior MPs that travel restrictions and mandatory Covid-19 checks on haulers coming from France could be needed, although he admitted this could cause “very serious disruption” to food supplies.

GBP

Sterling is lower versus the dollar and unchanged against the euro this morning. The U.K. economy could see a “rip roaring” recovery even if consumers spend just a bit of the additional savings they accumulated during the Covid crisis, according to Bank of England Chief Economist Andy Haldane. Meanwhile, the UK meat industry has warned that producers face up to £120m a year of extra long-term trading costs and the loss of at least a fifth of their total export trade because of post-Brexit requirements on shipments to the EU.

EUR

The euro is mostly unchanged against other major currencies overnight. Angela Merkel reversed course on a controversial Easter shutdown and apologised for a policy she admitted had been a mistake, in a move that underlined growing doubts about Germany’s management of the coronavirus pandemic. The U-turn came just 34 hours after authorities decided to extend the Easter holidays from three to five days, triggering a massive outcry.

USD

The dollar is stronger against most majors in the early morning trade. Democrats are considering a variety of possible tax increases, including boosting the corporate tax rate and the top marginal income-tax rate on individuals, to raise revenue as President Biden completes his infrastructure, climate and education proposal. VP Kamala Harris was put in charge of efforts to stop the flow of migrants from Central America over the southern border, as the administration battles to contain the growing crisis.

Markets

Japanese shares outperformed, while in Hong Kong Tencent Holdings Ltd. and Alibaba Group Holding Ltd. struggled after U.S. regulators revived threats to remove China’s largest corporations from their bourses. S&P 500 and Nasdaq 100 futures edged up after a rotation into cyclicals weighed on the technology gauge overnight. European contracts fell. West Texas Intermediate crude fell back to about $60 a barrel, having added more than 5% Wednesday.

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

8:00 a.m.: Germany April consumer confidence

8:00 a.m.: BOE’s Bailey speaks (and again at 10:30 a.m. and 11:00 a.m.)

8:45 a.m.: France March manufacturing, business confidence

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

9:30 a.m.: SNB rate decision

10:00 a.m.: ECB publishes economic bulletin; Euro-Area Feb. M3 Money Supply

10:00 a.m.: ECB’s Lagarde, Weidmann, Villeroy speak at BIS Innovation Summit

11:00 a.m.: Italy sells bonds

1:30 p.m.: U.S. 4Q GDP; Initial Jobless Claims

6:00 p.m.: ECB’s Guindos, Schnabel speak

SARB rate decision

EU Leaders Summit

Corporate Events

Earnings include EnBW, Exor, Deutsche Wohnen, Aroundtown, Scout24

To learn more about Ballinger & Co., please visit our website or our LinkedIn and Twitter pages.