Morning Report – Tuesday 9 March

Jon Robson, Head of Trading

“Jerome Powell was the main catalyst for highs in U.S. yields and the dollar last week but markets should be braced for further action as we see the finalisation of the $1.9 trillion pandemic relief package and the concentration of Treasury auctions.”

Main Headlines

Nancy Pelosi said that the US House of Representatives will take up the Senate version of the sweeping $1.9 trillion coronavirus relief package backed by President Joe Biden by Wednesday. If approved, this package will be one of the biggest U.S. anti-poverty measures since the 1960s. Democrats aim to enact this massive legislation by Sunday. The painful sale of 7-year debt has shaken the US debt market last month and investors fear that the new Treasury auctions will set off repeat bout of selling in the US.
Chancellor Rishi Sunak aims to balance Britain’s public finances by relying 60% on tax rises and 40% on spending cuts, a hard reversal of the government’s approach after the 2008/9 recession. Last week, his plan showed Britain’s budget deficit falling to 4% of GDP in 2023/24 from a peacetime high of 19% of GDP in 2020/21, when borrowing paid for most of the financial cost of the COVID-19 pandemic. UK retail sales started to grow in February after Boris Johnson revealed plans to ease the coronavirus lockdown measures. His announcement prompted shoppers to buy non-food items such as school uniforms and going out clothes.

GBP

Sterling is bid against the euro and dollar this morning. British consumers cut back heavily on spending as they spent a second month in a COVID-19 lockdown in February but confidence in the economy hit a 12-month high, payment card firm Barclaycard said on Tuesday. Consumer spending was 13.8% lower than a year before, similar to January’s plunge of around 16%. Spending on essential items grew 5.3% and online grocery shopping surged. But spending on non-essentials plummeted 22.1% with many businesses still closed. After suffering its biggest fall in three centuries last year, Britain’s economy is expected to grow strongly once the COVID restrictions are lifted between now and late June.

EUR

The euro is higher against most majors in the early morning trade. The Italian-Russian chamber of commerce said that Russia’s RDIF sovereign wealth fund has signed an agreement with Swiss-based pharmaceutical company Adienne to produce the Sputnik V vaccine against COVID-19 in Italy. The agreement aims to pave the way for the creation of the first Sputnik V production facility in Europe, with plans for Italian production to begin in June. The hope is that 10 mln doses of Sputnik V could be produced in Italy by the end of 2021. Meanwhile on Monday, Italy recommended the use of the AstraZeneca COVID-19 vaccines for those aged over 65, overriding previous doubts that the drug might not be very effective on the elderly.

USD

The dollar is slightly lower against most majors overnight. Texas Lieutenant Governor Dan Patrick called on power grid operator Electric Reliability Council of Texas on Monday to correct a $16 billion pricing error during the week of a winter storm that led to power outages across the state. Potomac Economics, the independent market monitor for Texas power regulator the Public Utility Commission, said last week that ERCOT made a $16 billion pricing error as it kept market prices charged to electricity providers too high for more than a day after widespread outages ended late on Feb. 17.

Markets

U.S. stock index futures rose as the advance in Treasury yields halted and Chinese shares pared losses following a report that the nation’s state-backed funds intervened in the equity market. Contracts on the Nasdaq 100 Index rose 1.2% as of 6:10 a.m. in London, bouncing from a 2.9% drop on Monday. Futures on the S&P 500 Index gained 0.8%, while those on the Dow Jones Industrial Average added 0.6%. Ten-year Treasury yields fell 2 basis points to 1.57%, snapping a four-day increase. Equity indexes in Asia got a boost as Chinese state-backed funds were said to have intervened on Tuesday to alleviate declines in the stock market. The funds stepped in to ensure stability during the government’s key policy meeting in Beijing, according to people familiar with the matter. The CSI 300 Index of stocks pared a loss of as much as 3.2%.

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

8:00 a.m.: Germany Jan. Trade
10:00 a.m.: Italy Jan. Industrial Production
10:30 a.m.: South Africa 4Q GDP
10:30 a.m.: Spain sells bills
11:00 a.m.: U.K. sells bonds
11:00 a.m.: Euro-Area 4Q GDP, Employment
11:00 a.m.: OECD publishes interim economic outlook
12:30 p.m.: ESM sells bills
7:00 p.m.: USDA March WASDE Report

Corporate Events

Jeffrey Gundlach speaks on DoubleLine Total Return Bond Fund webcast
Earnings include Continental AG, Symrise, ITV, Dufry