Morning Report – Thursday 4th March

Jon Robson, Head of Trading

“The rise in U.S. Treasury yields lent temporary support to the dollar, although market participants have avoided taking on big positions ahead of Jerome Powell’s speech, expected later today. The focus is still on rising interest rates and as long as commodity prices rise, the dollar will weaken against commodity currencies.”

Main Headlines

The US President and Democratic leaders have agreed to limit eligibility for the $1400 stimulus cheques proposed in the radical coronavirus relief bill. The $1.9tn economic relief package also includes an extension of federal top-ups to unemployment insurance, and $350bn for state and local governments. The extension of the airlines’ Payroll Support Program, $14bn for airlines and $1bn for their contractors, has been welcomed but it raises questions about the industry’s future where airlines have previously threatened to furlough tens of thousands of staff when bailout funds expire.

Rishi Sunak has delivered a “spend now, tax later” Budget to pull the UK economy out of the Covid-19 crisis. The Chancellor will spend £65bn in the next two years supporting jobs, investment and the recovery, followed by £25bn a year of corporate tax and income tax rises by 2025 which wasn’t too welcomed by Conservative ministers. He has committed an extra £35bn to companies and keeping people employed until the UK economy recovers, with an extension to the furlough scheme and cuts to VAT and business rates.

GBP

The pound is stronger against most major currencies this morning. Around 200,000 women in the UK could be eligible for pay-outs averaging £13,500 after a UK government review found systemic underpayment of their state pension for up to two decades. The Department for Work and Pensions revealed the underpayment error centres on state pension uplifts, or cash increases, for certain married women, widows and over-80s dating back to 1992.

EUR

The euro is lower against other majors overnight. Today, the European Commission is expected to publish a series of binding pay transparency measures designed to reduce wage inequality in the EU and shrink a gender pay gap that stood at 14.1 per cent in 2018 across the bloc. This is the first time that the EC requires all its 27 member states to enforce tougher pay reporting requirements on companies with more than 250 employees, and provide all workers with rights including the disclosure of colleagues’ salaries. The proposal has to be supported by a majority of member states and the European Parliament before it can be approved.

USD

The dollar is weaker versus the pound and stronger versus the euro in early morning trade. Antony Blinken, US secretary of state, has laid out the new administration’s approach to foreign policy. The secretary said that the Biden administration will seek to draw a line under a history of “costly military interventions” and policies aimed at regime change in other countries. The US still has troops in Afghanistan, the theatre of its longest-running war, and maintains troops in more than 500 sites overseas including Japan, Germany and Bahrain. Last week, Biden ordered the first military action of his presidency, launching deadly air strikes on Shia militias in Syria.

Markets

The renewed bout of Treasury volatility spurred a surge in bond yields on Wednesday, dragging down stocks as investors grappled with concern over stretched valuations. A selloff in high-flying giants such as Apple Inc. and Amazon.com Inc. outweighed gains in banks and energy producers. The Nasdaq 100 slumped to a two-month low, bringing its losses from a February peak to about 8%. The S&P 500 extended its slide into a second day, while the Dow Jones Industrial Average outperformed. Benchmark U.S. government yields approached 1.5%, with bonds pricing in the highest five-year inflation expectations since 2008. Traders also assessed data pointing to a slow and uneven economic recovery from the depths of the pandemic. Gold slid 1.4% to $1,714.77 an ounce. Silver fell 2.3% to $26.16 per ounce.

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

9:10 a.m.: ECB’s Knot, Centeno on panel

10:30 a.m.: U.K. Feb. Construction PMI

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

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

11:00 a.m.: Euro-Area Jan. Unemployment, Retail Sales

1:00 p.m.: Ukraine Rate Decision

2:30 p.m.: U.S. Initial Jobless Claims

6:05 p.m.: Fed’s Powell speaks

WTO’s Okonjo-Iweala at Brookings Institution event on women in leadership

OPEC+ meeting on output

Corporate Events

Earnings include Henkel, Knorr-Bremse,Vonovia, Sberbank, Broadcom, Costco

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