Morning Report – Wednesday 17 March 2021

Jon Robson, Head of Trading

“Expectations are for a lift in growth and inflation projections and Fed Chair Jerome Powell’s press conference will be scrutinised for any shifts in views however, we expect the Fed to again affirm its commitment to a low interest rate environment and continued stimulus.”

Main Headlines

The Federal Reserve is poised to upgrade its forecasts for the economy on Wednesday, pointing to an acceleration of the US’s recovery from the pandemic that will test the central bank’s willingness to maintain its ultra-loose monetary policies in the years ahead.  At the end of a two-day meeting of the Federal Open Market Committee, economists are expecting the central bank to make a significant upgrade to its December prediction that the US would grow by 4.2 per cent this year, with core inflation at 1.8 per cent and the unemployment rate dropping to 5 per cent. Many private sector economists have already upgraded their forecasts on the back of President Biden’s $1.9tn stimulus and a faster vaccine rollout, with more than 2.4m Americans receiving a jab each day.

More than half of managers in the UK want to be allowed to make coronavirus vaccinations mandatory for staff returning to work, according to a survey that adds to the existing pressure on the government to support “jabs for jobs” to help accelerate the reopening of the battered British economy. Close to half also said that office access should be restricted for those who refused to get a vaccination on non-medical grounds, the national poll conducted by the Chartered Management Institute of more than 1,000 managers found. Three-fifths of managers have already decided to make testing available for their employees when they are allowed to return to the office — with a fifth saying this will become mandatory to return to work.

GBP

Sterling was stronger against other major currencies this morning. Britons are planning to use a hefty chunk of the savings built up over the past year to go on a £50bn spending spree once restrictions are lifted, a report has said. Research by the ISA provider Scottish Friendly and the consultancy, the Centre for Economics and Business Research, found that households intend to take more holidays at home and abroad, travel, and go out to eat in cafes and restaurants. The report said a quarter of the £192bn of lockdown savings accumulated since the pandemic curbed activity in the UK in March 2020 would be spent.

EUR

The euro was bid lower against other majors overnight. The European Central Bank said it may give lenders more time to replenish their capital, as they work through credit that goes sour because of the pandemic. “In the coming months we will closely watch developments and stand ready to postpone the timeline to rebuild buffers if doing so would help banks to quickly process the expected increase in non-performing loans,” said Andrea Enria, chair of the ECB’s supervisory board. The supervisor said last year that it won’t push banks to start rebuilding capital until losses subside, and at any rate not before the end of 2022.

USD

The dollar was stronger against the euro and weaker against the pound in early morning trade. Americans are expected to pour billions of dollars into the stock market when stimulus payments begin hitting bank accounts later this week, adding fresh fuel to a retail trading frenzy that has swept Wall Street. Retail investors are likely to buy almost $3bn worth of equities when the payments, part of Joe Biden’s $1.9tn spending package, are transferred in coming days, according to Vanda Research. That would be around $1.5bn more than the typical daily inflow over the previous month. “This would represent by far the largest single day of buying from retail ever,” said Eric Liu, head of research at Vanda.

Markets

Asian stocks were steady Wednesday as investors assessed the economic recovery and the risk of a shift in the Federal Reserve’s dovish policy projections. Treasury yields held near the highest levels in over a year. Japanese stocks were little changed and China’s CSI 300 swung between gains and losses. South Korean shares retreated as Samsung Electronics Co. warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally. European and U.S. equity futures fluctuated. The S&P 500 overnight snapped a record run and the tech-heavy Nasdaq 100 posted a modest rise. The Treasury 10-year yield held around 1.62% heading into day two of the Fed’s meeting, after a 20-year bond auction drew strong demand. Market-implied inflation expectations are at 12-year highs. Elsewhere, oil edged up to trade around $65 a barrel. Bitcoin held at around $56,000, below the weekend record above $61,000. Gold was up 0.3% at $1,736.67 an ounce.

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

8:00 a.m.: EU27 Feb. New Car Registrations

11:00 a.m.: Euro-Area Feb. CPI, Jan. Construction Output

11:00 a.m.: U.K. sells bonds

11:30 a.m.: Germany sells bonds

3:30 p.m.: EIA Crude Oil Inventory Report

4:00 p.m.: ECB’s Elderson speaks

5:00 p.m.: Russia Feb. PPI

7:00 p.m.: FOMC Rate Decision

7:30 p.m.: Fed’s Powell speaks

The Netherlands holds general election

IEA Oil Market Report

Corporate Events

Earnings include Pinduoduo

To learn more about Ballinger & Co., please visit our website or our LinkedIn and Twitter pages.