Morning Report – Thursday 6 May

Jon Robson, Head of Trading

“For the majority of market participants, all eyes will be on the UK today as a “Super Thursday” of national and local elections coincide with the Bank of England’s latest decision. The elections represent a major test for scandal-hit Boris Johnson and even as the BOE is set to upgrade its growth forecast significantly, attention will focus on whether there are signs of policy tightening ahead.”

Main Headlines

President Biden’s administration has announced its support for the plan to temporarily waive intellectual property rights for Covid-19 vaccine patents. The President’s endorsement for the temporary suspension of the rules comes following mounting pressure from Democratic politicians and over 100 other countries. The US trade representative, Katherine Tai, swiftly followed Biden’s announcement, noting that the “extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures”. The news led to falling shares in a string of the world’s leading manufacturers of coronavirus vaccines.

It is “Super Thursday” in the UK as around 48 million people are now able vote in a slew of local and national elections across Britain, including those for the Scottish and Welsh parliaments, English local councils, and the Mayor of London. The host of elections, the biggest outside a general election, form a major test for both Prime Minister Boris Johnson and Sir Keir Starmer, the leader of the Labour Party, as the prospect of a new independence referendum hangs in the balance. Conservative MPs and supporters are bullish maintaining a healthy lead in recent national polls, though the allegations of “sleaze” which have plagued Boris Johnson for weeks now and led to a series of official inquiries may have narrowed this lead. National polls also tend to be poor guides to local elections and turnout may be affected by the pandemic.

GBP

Sterling is weaker against the euro and slightly stronger against the dollar in the early morning trade. The Bank of England is set to significantly upgrade its growth forecast as the debate shifts to how rapidly the economy can bounce back from Covid-19-induced losses. Elsewhere, the UK has sent two Royal Navy vessels to protect Jersey from a possible blockade amid escalating tensions with France over post-Brexit fishing rights. France threatened to cut electricity to the island after it started issuing licences to French boats under a new system last week.

EUR

The euro is stronger against most majors overnight. The EU has indicated that it will not ratify an investment agreement with China as long Beijing continues to enforce retaliatory sanctions against bloc officials over allegations of human rights abuses. European Commissioner for Trade Valdis Dombrovskis called China’s sanctions “unacceptable and regrettable” and stated that the ratification process could not be separated from the wider EU-China relationship. Meanwhile in Germany, the constitutional court dismissed emergency appeals against the Merkel government’s decision to impose curfews in areas with high Covid-19 infections amid rising frustration at continued restrictions and an inoculation campaign that is picking up pace.

USD

The dollar is weaker against other major currencies this morning. Richard Clarida, the Fed Reserve Vice Chair, said that despite “gangbuster” growth in Q1, the US economy is still a long way from the Fed’s goals. Boston’s Eric Rosengren separately voiced his belief that it is too soon to discuss tapering. Elsewhere, a federal judge struck down the nationwide moratorium on evictions imposed by the Trump administration last year and extended by President Biden until June 30, which may adversely affect renters struggling to pay landlords during the pandemic. The Justice Department immediately filed an appeal.

Markets

Asia stocks were mixed with Australian and Chinese indexes underperforming amid a further deterioration in trade relations. Hong Kong climbed and Japan led the region’s gains as trading resumed after a holiday. Shares fell China as officials announced a formal suspension of an economic dialogue with Australia, in a largely symbolic move intended to signal Beijing’s growing frustration with Canberra. U.S. futures were little changed after the tech-heavy Nasdaq 100 closed in the red, while the S&P 500 notched a small gain. Benchmark 10-year Treasury yields edged higher. Meanwhile, Gold was up 0.1% and oil fluctuated as traders assessed an increase in gasoline stockpiles.

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

8:00 a.m.: Russia April Services, Composite PMI

8:00 a.m.: Germany March Factory Orders

10:00 a.m.: ECB publishes Economic Bulletin

10:00 a.m.: Norges Bank Rate Decision

10:30 a.m.: U.K. April Services, Composite PMI

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

11:00 a.m.: Euro-Area March Retail Sales

12:30 p.m.: ECB’s de Guindos speaks

1:00 p.m.: BOE, Turkey rate decisions

1:15 p.m.: ECB’s Lagarde speaks

2:30 p.m.: Czech rate decision

2:30 p.m.: U.S. initial jobless claims

3:15 p.m.: ECB’s Schnabel speaks

European University Institute holds State of the Union gathering

Petersberg Climate Dialogue

Scotland and Wales parliamentary, U.K. local and London mayoral elections

Corporate Events

Earnings include Linde, Rio Tinto, Enel, Continental, Ferrovial, Square, Moderna

 

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