Morning Report – Wednesday 15th July

Main Headlines

Angela Merkel is prepared to compromise as she prepares to press for an agreement on a European recovery plan this weekend. “There are still different opinions to overcome,” Merkel said after meeting with Spanish PM Pedro Sanchez. “From the German side, we will go to Brussels with a certain reserve of compromise.” Sanchez said July “must be the month of decisions.” Dutch PM Mark Rutte remains doubtful it will happen.

The BOJ kept policy on hold while painting a slightly dimmer picture of the economy as it signalled it doesn’t see a quick recovery from the pandemic. The board now sees the economy shrinking 4.7% in the 12 months through March 2021. In April, it saw a contraction of somewhere between 3% and 5%. The new forecast assumes Japan avoids a large scale second wave of virus infections, which is no given in light of recent flare ups in Tokyo.

Moderna’s Covid-19 vaccine produced antibodies in all patients tested in an initial safety trial, with the neutralising antibody levels equivalent to the upper half of what’s seen in patients who get infected with the virus and recover. This came as more grim records were set in large population centres of the U.S. for daily new cases in Texas and Los Angeles and for fatalities in Florida.

U.S. and European stock futures rallied with Asian equities amid optimism that progress is being made in developing a virus defence. Tokyo shares rallied, while Chinese equities slid for a second day on speculation the recent rally was overdone. Treasuries and gold edged lower. Oil extended gains.

GBP

Sterling fell to a one and two week lows against the dollar and euro respectively after data showed Britain’s economy was recovering more slowly than forecast. Gross domestic product rose by 1.8% in May after falling by a record 20.8% in April, the Office for National Statistics said, well below forecasts. Consumer data also indicated a tentative recovery. The British Retail Consortium said retail sales values rose by 3.4% in annual terms in June, and Barclaycard said overall consumer spending fell 14.5% in annual terms in June, the smallest decline since lockdown began.

EUR

The euro rose to a four month high against the dollar on Wednesday on hopes European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the pandemic.

USD

The dollar was on the defensive, particularly against other growth leveraged currencies such as the Australian dollar, following an uptick in U.S. inflation and news of progress in vaccine development. The currency extended losses this morning after U.S. consumer prices rebounded 0.6% m/m, the most in nearly eight years, in June, easing worries about deflationary pressures from the economic downturn.

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

7:00 a.m.: U.K. June CPI/RPI
10:00 a.m.: South Africa May CPI
10:00 a.m.: BOE’s Tenreyro speaks on Covid-19 and the economy
10:20 a.m.: Sweden and Spain prime ministers hold joint press briefing
4:30 p.m.: EIA weekly report on U.S. oil inventories
OPEC meet
North Macedonia holds snap election

Corporate Events

Earnings include ASML, Atea, Axfood, Bonheur, Bossard, Castellum, Dixons Carphone, DKSH, Kongsberg, McCarthy & Stone, Pandox, Sbanken, SEB, Handelsbanken, TomTom, Goldman Sachs, Alcoa