Morning report – Wednesday 3 March

Jon Robson, Head of Trading

“Treasury yields have retreated further, restoring some calm to global markets and reigniting demand for riskier assets. If the 10-year U.K. government bond yield continues to rise faster than the 2-year yield in a controlled fashion, that should be moderately supportive for sterling, while a flattening of the yield curve would be mildly negative for the currency.”

Main Headlines

US President Joe Biden has withdrawn Neera Tanden’s nomination as White House budget director after a backlash against her history of tweets attacking political foes. As Tanden’s chances of confirmation faded, members of the Senate focused on possible replacements, with Shalanda Young, Biden’s choice to be deputy budget director, emerging as the frontrunner. Biden also announced on Tuesday an accelerated timeline for vaccinating all adults in the country, saying, “we’re now on track to have enough vaccine supply for every adult in America by the end of May.”

Rishi Sunak will use Wednesday’s Budget to extend a vast package of Covid-19 support until the end of September, in a plan which he hopes will nurse Britain back to economic health by the autumn. The furlough scheme, due to end in April, will run in its current form until the end of June, by which point the government hopes to have lifted any remaining coronavirus restrictions. Combined with an extension of the business rates holiday, a £5bn grants scheme for the high street and other measures, Sunak’s new Covid-19 support package — intended to “cushion” businesses and workers as the economy starts to reopen — will be well in excess of £20bn.

GBP

The pound is stronger against other majors overnight. A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles. The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

EUR

The euro is mostly unchanged against the dollar and lower versus sterling this morning. France’s vaccination campaign, which has been heavily criticised for its slow progress, is beginning to reduce Covid-19 infections, hospitalisations and deaths among people over 80. But with cases rising among younger adults, the government must decide whether more restrictions are needed to contain the spread of the virus.

USD

The dollar is lower against most currencies in early morning trading. Joe Biden’s nominee to lead the US stock market regulator has promised a review of fees paid by large Wall Street firms to retail brokerages in the wake of chaotic trading in companies such as GameStop. Gary Gensler on Tuesday said that if confirmed as head of the Securities and Exchange Commission he would want to look into payment for order flow, in which retail brokerages receive fees from market makers to handle their trades.

Markets

U.S. stocks dropped after the biggest rally in nine months spurred speculation about excessive investor optimism. Treasuries stabilised, following a recent spike in yields. Technology shares led losses in the S&P 500 as Apple Inc. and Tesla Inc. dragged down the Nasdaq 100 – with the electric-car maker tumbling more than 4%. Target Corp. sank on an underwhelming profitability outlook. Rocket Cos., a Detroit-based holding company, soared after a news report that the stock could become a Reddit target for its high short-interest. West Texas Intermediate crude fell 1.6% to $59.65 a barrel. Gold rose 0.5% to $1,733.71 an ounce.

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

9:15 a.m.: Spain Feb. Composite, Services PMI
9:45 a.m.: Italy Feb. Composite, Services PMI
9:50 a.m.: France Feb. Composite, Services PMI
9:55 a.m.: Germany Feb. Composite, Services PMI
10:00 a.m.: Euro-Area Feb. Composite, Services PMI
10:00 a.m.: Italy 4Q GDP
10:30 a.m.: U.K. Feb. Composite, Services PMI
11:00 a.m.: Euro-Area Jan. PPI
11:30 a.m.: Germany sells bonds
1:00 p.m.: ECB’s De Cos speaks
2:00 p.m.: ECB’s Panetta speaks
4:00 p.m.: ECB’s Guindos speaks
4:30 p.m.: EIA Crude Oil Inventory Report
5:00 p.m.: BOE’s Tenreyro speaks
8:30 p.m.: ECB’s Schnabel on panel
Poland rate decision
Germany’s Merkel meets with state leaders
U.K.’s Sunak presents budget

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