29 June 2021

“The delta variant surge around the world is weighing on riskier assets, resulting in stronger safe-haven currencies, including the dollar. Market participants’ optimism around inoculation and trade has been undermined, and reducing the possibility of euro gains against the dollar in the near future.”

Sam Cornford, Partner & Head of Trading

Main Headlines

US banks will pay investors an extra $2bn of dividends next quarter after passing the Federal Reserve’s stress tests last week, allowing them to break free from restrictions set up due to the coronavirus pandemic. Dividend payouts by America’s six largest lenders will rise, on average, by almost half, with Citigroup abstaining from an increase. Morgan Stanley doubled its quarterly payout while also announcing $12 billion in stock buybacks. The move underscored the confidence of large US lenders, which can return more capital to shareholders and still remain comfortably above the levels mandated by the Fed.

Spain has taken UK visitors off the list for restriction free travel. Travelers will have to either certify full vaccination or provide a negative virus test amid concern about the coronavirus delta variant. Portugal has also imposed new restrictions on UK tourists as Germany pushed for a more coordinated EU response to try to limit the strain taking hold in the bloc. The changes are a setback for Europe’s holiday destinations, and shares of airlines fell on Monday. Hong Kong will ban all passenger flights from Britain starting Thursday, just as it loosens entry requirements for people traveling from most other parts of the world.

GBP

Sterling is weaker against most major currencies this morning. UK house prices grew at their fastest annual pace for more than 17 years in June, adding to a growing wealth gap that’s worrying policy makers. Prices rose 0.7% from May, their third consecutive monthly increase. Meanwhile, the Home Office has ordered a major overhaul of the Border Force amid growing frustration over the failure to stem the flow of illegal Channel migrants. Home Secretary Priti Patel will unveil proposed new laws next week that will allow the Government to send asylum seekers abroad for processing.

EUR

The euro is higher versus the pound and lower against the dollar overnight. The head of Germany’s central bank has called for the European Central Bank’s pandemic-related bond purchases to be “reduced step-by-step” and warned that inflationary pressures are mounting in the eurozone. His remarks set up a clash with other members of the central bank’s governing council about the future path of its policy. Eurozone inflation rose to 2 per cent in May, the first time the rate had surpassed the ECB’s target in more than two years, although economists expect that new data on Wednesday will show it dipped slightly in June.

USD

The dollar is well bid versus most other majors in the early morning trade. Eric Rosengren, the president of the Boston Fed, has warned the US cannot afford a “boom and bust cycle” in the housing market, in a sign of growing concern over rising property prices at the central bank. Elsewhere, a federal judge dismissed antitrust lawsuits against Facebook filed by the U.S. government and most states, a major win for the company before the cases even got off the ground. The judge said the Federal Trade Commission can try again and gave it 30 days to attempt to file an amended lawsuit.

Markets

Asian stocks dipped Tuesday amid concerns a more infectious Covid-19 strain will derail an economic recovery. An MSCI index of Asia-Pacific shares was on track for its first decline in six days as countries in the region are struggling to contain the highly transmissible Delta variant of the virus. U.S. futures dipped after technology stocks led U.S. benchmarks to fresh records Monday. European contracts edged up. The Treasury yield curve flattened amid month-end index rebalancing and the break in auctions until July 12, reducing supply. Oil was steady with the market expecting OPEC+ producers to increase supply at an upcoming meeting. Bitcoin was steady.

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

8:00 a.m.: U.K. June Nationwide House Prices

8:45 a.m.: France June Consumer Confidence

9:00 a.m.: Spain May Retail Sales, June CPI

10:30 a.m.: U.K. May Mortgage Approvals

11:00 a.m.: Euro-Area June Consumer Confidence

2:00 p.m.: Germany June CPI

3:40 p.m.: ECB’s Lagarde speaks

5:45 p.m.: ECB’s Villeroy speaks

6:00 p.m.: ECB’s Weidmann speaks; BOE’s Hauser speaks

Brussels Economic Forum features presentations from Germany’s Merkel, ECB’s Lagarde and WTO’s Okonjo-Iweala

Israel’s Lapid visits the UAE

EU’s Agriculture and Fisheries Council meets

G-20 foreign ministers meet

Corporate Events

Credit Suisse Sustainability Week

Credit Q&A: Ask DoubleLine’s Monica Erickson

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