Morning Report – Tuesday 26th May

Main Headlines

China sought to reassure Hong Kong and global markets by declaring the city’s judiciary will remain independent even if proposed new national security laws take effect. Still, doubts persist. After a resurgence in demonstrations over the weekend, Xie Feng, the foreign ministry’s local point man, gave few details of the package or its implementation. He also mischaracterized the aims of most protesters, claiming changes are needed to stop separatists.

Tensions between Beijing and Washington remain high. China pushed back against the blacklisting of 33 of its firms by the U.S., and defended its crackdown in Xinjiang that prompted the action. The foreign ministry described the restrictions on access to American technology as interference in Chinese internal affairs. It urged the U.S. to withdraw the measure, but didn’t announce any form of retaliation.

European and U.S. stock futures rallied with Asian equities amid more signs of economies reopening and a rise in a gauge of German business expectations. The Nikkei 225 surged 2.7% as Japan ended its nationwide state of emergency. Gains for S&P 500 futures weren’t too far off as Wall Street prepped for an upbeat open after the holiday. WTI crude cruised past $34 a barrel. The dollar fell with Treasuries.

Germany agreed on a 9 billion euro bailout for virus hit airline Lufthansa, sending shares up 7.5%. The government will take an initial 20% stake, which could rise to a blocking minority of 25% plus one share in the event of a hostile takeover. Finance Minister Olaf Scholz said Germany’s investment would be temporary, but stressed that the timing of an exit would depend on the pace of Lufthansa’s recovery. The plan requires EU approval and will almost certainly be challenged by rival carriers such as Ryanair.

GBP

UK outdoor markets and car showrooms can reopen from June 1 as long as they meet guidelines to protect shoppers and workers, and other retail outlets selling shoes, clothes and toys among other things can open from June 15. Pubs, clubs and restaurants will stay dark until at least July. Dominic Cummings defended his trip that flouted lockdown rules, and Boris Johnson declined to pass judgement. “People will have to make up their own minds,” the PM said. Sterling is continuing its recovery since touching recent lows on reopening news.

EUR

The ECB continues to leave the door open for future action. Key policy maker Francois Villeroy de Galhau told a Paris conference there is room to innovate and act “rapidly and powerfully,” signalling it could boost its emergency bond-buying program. He also signalled that he’d like to see limits on the current 750 billion euro plan loosened even more. “It is in the name of our mandate that we will very probably need to go even further.” The ECB’s next policy meeting is June 4. Germany’s IFO survey readings suggest a small turnaround in business sentiment in May, but remain consistent with activity continuing to contract, similar to the PMI data.

USD

The dollar is losing ground against the majors leading into month end with risk appetite improving and volatility edging lower. The Trump administration said sufficient quantities of Abbott Laboratories’ ID NOW Covid-19 test and Quidel Corp.’s Sofia 2 instruments exist to support 200 million U.S. tests per month.

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

• 7:00 a.m.: Germany June consumer confidence
• 1:00 p.m.: Hungary rate decision
• 1:45 p.m.: ECB’s Lane speaks
• 2:00 p.m.: ECB publishes financial stability review
• 2:00 p.m.: Russia April retail sales, unemployment