Morning Report – Tuesday 16th June

Main Headlines

The U.K. and European Union look on course to reach a deal over their future relationship, with the bloc’s top officials confident Boris Johnson is willing to compromise and the prime minister saying the prospects for an accord are “very good.” Formal discussions will resume on June 29 in a more concentrated format than the previous series of talks every three weeks. The government, which has ruled out extending the December deadline for negotiations, had been pushing for the discussions to be sped up.

What started as a notably negative Monday on Wall Street ended on a positive note. The S&P 500 erased a 2.5% drop to close higher after the Fed said it would begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds. Gold pushed higher as investors counted down to testimony from Federal Reserve Chairman Jerome Powell on the central bank’s next steps to combat the hit from the coronavirus pandemic.

GBP

U.K. jobless claims jumped by more than half a million in May as the lockdown designed to stop the spread of coronavirus caused chaos throughout the labour market. Data released this morning by the Office for National Statistics showed claims for jobless benefits soared 529,000 last month, taking the total claimant count to 2.8 million. The figure for April was revised up to more than one million. BOE policy makers are expected to announce a further expansion of their asset-purchase program this week as pressure increases for more support for the economy. Sterling has bounced off two week lows as the economy reopens and the likelihood of a Brexit deal being reached increases.

EUR

The Dutch economy is set for an unprecedented decline this year, as efforts to contain the coronavirus outbreak brought large parts of the country to a virtual standstill in recent months. The euro zone’s fifth largest economy is set to shrink by 6.4% this year, before rebounding with growth of 3.3% in 2021, government policy adviser CPB said this morning. The euro is heading back towards three months highs versus most counterparts whilst market participants await an agreement on the latest stimulus package.

USD

The dollar slipped and riskier currencies are advancing this morning as the U.S. Federal Reserve prepared to start its corporate bond buying scheme, while a report flagging the possibility of more fiscal stimulus helped underpin investor sentiment. Investor sentiment was further lifted by a Bloomberg News report saying that President Donald Trump’s administration is mulling a nearly $1 trillion infrastructure programme to boost the economy.

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

7:00 a.m.: U.K. April unemployment
7:00 a.m.: Germany May CPI
9:45 a.m.: Spain sells bills
10:00 a.m.: U.K. sells bonds
10:00 a.m.: Germany June ZEW Survey
3:00 p.m.: ECB’s Visco speaks
3:00 p.m.: Fed’s Powell delivers policy report to Senate
5:00 p.m.: Russia May industrial production

Poland rate decision