Morning Report – Tuesday 12th May

Main Headlines

Boris Johnson watered down his plan for rebooting the U.K. economy after employers and labour unions said many workplaces are not yet ready for the return to work he called for on Sunday evening. Only 24 hours after telling Britons they could return to work if unable to work from home, the prime minister used a televised press conference on Monday evening to say they “should now think about going back to work providing your workplace is Covid-secure and providing you can travel to work safely.”

The Hang Seng led Asian equity benchmarks lower, though declines were more modest in Tokyo and Shanghai. U.S. and European stock futures also fell as investors assessed efforts to reopen economies against a backdrop of weak earnings. The Aussie dollar dipped after China halted imports of meat from some of the nation’s abattoirs. Treasury yields slid, while oil and gold edged higher.

Nigerian manufacturers are struggling to stay in business because a foreign-exchange shortage spawned by the collapse in oil prices means they can’t import raw materials. The central bank was forced to devalue the naira in March as income from crude sales that generate 90% of the West African nation’s export earnings dried up. Foreign investors looking to repatriate their funds have been asked to be patient.

GBP

The pound was already weighed down by concerns over trade talks between the U.K. and Europe and the economic fallout of the virus however, the lack of clarity in the governments plan to ease the nationwide lockdown has only added to this. Investors are worried about the lack of progress in the post-Brexit talks and about widespread criticism that the government’s response to the coronavirus crisis was not swift enough.

EUR

Italy’s debt load is so big its only hope is to get EU aid, according to Austrian Chancellor Sebastian Kurz. The depth of the euro-area downturn has become more obvious since the Governing Council launched PEPP on March 18 and that calls for additional monetary stimulus. The latest estimates from the ECB show GDP contracting by around 8% under a medium scenario and 12% in an extreme case.

USD

The dollar maintained broad gains yesterday in quiet trade after Federal Reserve officials downplayed the idea of negative rates being used as a policy tool to combat the coronavirus. Atlanta Fed chief Raphael Bostic called himself “not a great fan” of the concept. Chicago’s Charles Evans agreed. “I don’t anticipate that being a tool that we would be using in the U.S.,” he said. He also predicted unemployment could fall to 9% by year-end. Separately, the Fed said its secondary market facility will start buying ETFs today.

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

7:30 a.m.: Bank of France April Industrial Sentiment
9:45 a.m.: Spain sells bills
10:00 a.m.: Italy sells bills
10:30 a.m.: ESM sells bills, Germany sells bonds
12:00 p.m.: Turkey sells bonds
Ukraine parliament holds emergency meeting

Corporate Events

Earnings include Allianz, Deutsche Post, E.ON, Innogy, Engie, Porsche, Honda, Daikin, Shiseido

Corporate Highlights

BlackRock’s biggest investor is exiting. PNC Financial will sell its 22% stake, worth about $17 billion, in a public secondary offering and back to the world’s largest asset manager.