Morning Report – Wednesday 24 March 2021

Jon Robson, Head of Trading:

“Renewed fears about the economic fallout from Covid-19 will likely impact Europe on Wednesday as extended coronavirus lockdowns in the region cloud the outlook for economic recovery. Meanwhile, the US could have an impressive rebound in coming months amid a strong vaccine roll-out, stimulus payments and economic reopenings.”

Main Headlines

Yesterday, the US Treasury Secretary was testifying to the House Financial Services Committee, along with Federal Reserve Chair Jerome Powell, and told lawmakers that future tax hikes will be needed to pay for infrastructure projects and other public investments. Powell then reiterated that an expected near-term spike in inflation will be transitory. Today, both Yellen and Powell are scheduled to testify to the Senate Banking Panel. Worries over the pace of the pandemic recovery also increased after a US health agency said the AstraZeneca vaccine may have included outdated information in its data. In response, AstraZeneca insisted that figures it released on Monday showing the jab was 79% effective against covid and 100% effective against severe illness from the disease stood up to scrutiny.

SMEs and millions of people in the UK face the prospect of having to pay income and corporate tax bills much earlier under proposals the government launched on Tuesday as part of its “tax day” consultations. Launching 30 consultations and updates, the Treasury suggested changing the timing of almost all tax payments after 2024 to fulfil its aims for a tax system that works closer to real time. There were no significant suggestions to fundamentally reform pension tax reliefs, capital gains tax or the taxation of the self employed. Campaigners for a more progressive tax system such as Robert Palmer, executive director of Tax Justice UK, said “tax day has turned out to be a bit of a flop”. But for those affected, the consultations were significant.

GBP

The pound is weaker against the dollar and the euro this morning. Northern Irish businesses risk being locked out of the UK’s new government-backed loan scheme if they fall foul of EU state aid rules that continue to apply in the region after Brexit. Officials have warned lenders that local companies may be “ineligible” for the new scheme – the latest unexpected consequence from Britain leaving the EU. Treasury officials are working on the final details of the government guaranteed Recovery Loan Scheme that will replace £72bn of coronavirus-related support measures from April 6. The new scheme will be similar to the existing Coronavirus Business Interruption Loan Scheme, with 80% guarantees for bank loans of up to £10m.

EUR

The euro is weaker against the dollar and stronger versus the pound in the early morning trade. Valdis Dombrovskis, the EU’s trade commissioner, warned that China’s decision to escalate a sanctions row risks imperilling a market-access deal meant to be the cornerstone of future relations between Brussels and Beijing. The commissioner said that the fate of the freshly negotiated EU-China Comprehensive Agreement on Investment was tied up with the diplomatic dispute, which erupted this week. “China’s retaliatory sanctions are regrettable and unacceptable,” Dombrovskis said. While the politics of the CAI become more complicated, the economic rationale for the EU of concluding it has been clear – it’s a long-term goal of the EU’s policy towards Beijing.

USD

The safe-haven U.S. dollar approached a four-month high this morning, standing stronger against all major currencies. The US Chamber of Commerce, America’s most powerful business lobby group, is fighting back against attempts by Senate Democrats and the Securities and Exchange Commission intended to force listed companies to publish what they spend on politics, including through lobbying organisations. This move, supported by the incoming chair of the SEC, would upend political spending rules in the US, which otherwise allow companies to spend billions of dollars promoting causes and candidates through a number of undisclosed routes.

Markets

Asian stocks and European equity futures declined Wednesday after setbacks to the recovery from the pandemic weighed on U.S. shares and crude oil, and drove haven trades into Treasuries and the dollar. A gauge of Asia-Pacific shares fell the most in about two weeks, with value and cyclical sectors struggling. Hong Kong equities fell close to a correction amid the city’s decision to temporarily suspend BioNTech SE vaccines. The S&P 500 slipped Tuesday and reopening favorites like the small-cap Russell 2000 underperformed. S&P 500 futures were steady and Nasdaq 100 contracts rose. Gold was at $1,731.05 an ounce, rising 0.2%.

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

8:00 a.m.: U.K. Feb. CPI, RPI, PPI

9:15 a.m.: France March PMIs

9:30 a.m.: Germany March PMIs

9:55 a.m.: Iceland rate decision

10:00 a.m.: Euro-Area March PMIs

10:30 a.m.: U.K. March PMIs

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

11:30 a.m.: Germany sells bonds

2:30 p.m.: Czech rate decision

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

4:00 p.m.: Euro-Area March consumer confidence

4:40 p.m.: ECB’s Lagarde speaks

German cabinet due to sign off on 2022 budget plan

Corporate Events

Earnings include Tencent, Xiaomi, PetroChina, E.ON, Terna

LSE conducts fixed income investor calls

 

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