Morning Report – Thursday 7th May

Main Headlines

BOE policy makers said they are ready to do more to support the slumping economy, which they see shrinking 14% this year, including a 25% drop this quarter. The central bank left rates unchanged and refrained from boosting its bond-buying program, though two officials voted for an immediate 100 billion-pound increase in purchases. The Bank of England may expand monetary stimulus as soon as next month to help the battered U.K. economy.

Liberty Global and Telefonica agreed to combine their U.K. businesses O2 and Virgin Media, creating a company with an enterprise value of 31 billion pounds. The deal, negotiated since December, will bring cost savings of 6.2 billion pounds. Telefonica will get an initial payment of about 2.5 billion pounds from John Malone’s Liberty Global and another 5.7 billion pounds in future recapitalizations, and they will have equal stakes in the venture.

Lufthansa’s 10 billion-euro bailout is being delayed by German lawmakers arguing against the government taking a direct 25% stake in the carrier and having veto power, people familiar said. Airline representatives are also seeking a smaller stake while the finance and economy ministries defended the original plan. Talks may continue into next week as differences get ironed out.

U.S. and European stock futures rose, while Asian equities erased losses after China reported a gain in exports. The offshore yuan climbed with the Aussie and Kiwi. Japanese shares were mixed as markets reopened after a break. WTI crude was steady around $24 a barrel. Gold advanced with industrial metals. Treasuries stayed buoyant. The Norwegian krone was a big gainer.

The Turkish lira slumped to an unprecedented low, defying efforts by state banks to prop up the currency by selling foreign exchange. This week, state banks have sold at least $1.5 billion as part of a concerted effort by government-backed lenders to slow the lira’s which has ignited investor concerns the central bank is burning through its foreign currency reserves.

China’s exports rose 3.5% last month, defying expectations for an 11% tumble. Imports dropped a worse-than-expected 14.2%. While the jump in exports reflects pent-up demand, it could ratchet up trade tensions with the U.S.

GBP

The pound rallied after the Bank of England refrained from boosting its bond-buying program and held its benchmark interest rate steady. Sterling recovered from a two week low as the BOE kept interest rates and quantitative easing unchanged in a rare early morning policy announcement. The central bank has already slashed interest rates to a record low and pledged to buy 200 billion pounds of debt. The spread of the coronavirus in March drove the pound down to its lowest level since 1985, but it has since recovered quite significantly.

EUR

The euro zone economy is facing a deep recession amid the coronavirus pandemic and greater cooperation is needed in fiscal policy to support the recovery, European Central Bank Vice President Luis de Guindos said this morning. Sentiment in the euro remains bearish.

USD

The dollar remains supported as the pandemic continues. The impact of easing lockdowns or geopolitical issues between US-China could be the next catalyst for a move. Federal Reserve Bank of St. Louis President James Bullard said policy makers need to mitigate the ongoing risks from the coronavirus in the second half of the year and gradually reopen the U.S. economy to avoid deeper harm.

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

• 8:30 a.m.: Germany April Construction PMI
• 9:00 a.m.: Norway Rate Decision
• 9:00 a.m.: Italy March Retail Sales
• 10:00 a.m.: BOE publishes briefing with Bailey
• 1:30 p.m.: Czech Rate Decision
• 2:00 p.m.: Russia April CPI

Corporate Events

Earnings include Uber, Linde, Raytheon, Booking, Ferrovial, Continental, Zalando, Nintendo

Corporate Highlights

• BT suspended dividends and didn’t provide an outlook for the fiscal year.
• AB InBev warned this quarter will be much worse than the first three months of the year as bars and restaurants are closed during the lockdown.
• Peloton’s revenue soared 66% and it boosted its fiscal 2020 revenue guidance to $1.72 billion-$1.74 billion. Shares jumped 11% post-market.
• Lyft reported a smaller loss than expected, sending shares 16% higher in late trading.
• T-Mobile profit topped estimates, but sales missed. It didn’t provide full-year guidance.
• PayPal said it’s seeing a significant improvement this quarter following a slowdown in the first, sending shares 8.5% higher post-market.