Friday 21 May, 2021

“The dollar retreated from brief gains after a mention of possible future tapering discussions in minutes from the Fed’s April meeting prompted concerns of premature rate rises. Sterling paused its May advance as market participants await Purchasing Managers’ Index data due later today.”

Sam Cornford, Senior FX Dealer

Main Headlines

Jay Powell announced on Thursday that the Federal Reserve is actively considering a digital version of the dollar that would be controlled by the US central bank. The Fed chair said it would seek public comment on the idea, amid pressure from some US lawmakers and growing interest in central bank digital currencies (CBDCs) around the world. Powell stressed the potential benefits and drawbacks associated with digital currencies, highlighting the growth of stablecoins, private digital currencies pegged to the dollar, which he said could pose a threat to the financial system. A central bank-issued digital currency has been discussed by the Fed for some time, but the latter has been seen as more sceptical than some other countries’ monetary authorities.

Cases of a Covid-19 variant from India more than doubled in the U.K. for a second week, putting more pressure on the country’s current reopening schedule. Health officials have now detected 3,424 cases of the B1.617.2 variant, also known as VOC-21APR-02. That’s up from 1,313 last week, and 520 a week earlier. However, Boris Johnson has become more confident that the end of restrictions can remain on track as emerging data suggests that the strain is unlikely to be 50 per cent more transmissible than the Kent variant. Ministers are considering contingency plans for Tier 4-style lockdowns in areas with high rates of transmission or delaying the June 21 relaxation entirely.

GBP

Sterling is weaker against most major currencies this morning. U.K. retail sales jumped for a third month in April after an easing of Covid-19 restrictions allowed consumers to return to stores.The volume of goods sold in shops and online climbed 9.2% from March, more than double the pace anticipated by economists. Elsewhere, almost a third of U.K. logistics companies expect to face trucker shortages this year, and a 10th say recruitment issues will pose an “extreme barrier” to the recovery of their business from the pandemic.

EUR

The euro is well bid against most majors overnight. The European Parliament has signalled fierce opposition to advancing a market-access treaty with China. The European Central Bank’s chief economist Philip Lane asserted that a recent surge in producer prices caused by supply chain disruption has “nearly zero connection” to underlying economic trends and does not suggest that rising inflation is a threat. His comments are the most forceful indication so far that the ECB is determined to maintain its ultra-loose monetary policy.

USD

The dollar is lower versus the euro and higher against the pound in early morning trade. The Biden administration issued an executive order that begins a series of legislative initiatives which will force a broad range of US banks and companies to disclose risks from climate change. The order instructs Treasury secretary Janet Yellen to work with the other members of the Financial Stability Oversight Council to report how they plan to “reduce risks to financial stability”. Meanwhile, the US signalled it will accept a 15 per cent global minimum tax on large multinational companies in international talks aimed at increasing revenues from corporations that operate across borders

Markets

Asian stocks were steady Friday after a Wall Street rebound as traders weighed the economic recovery from the pandemic as well as the possibility of reduced U.S. stimulus. Shares rose in Japan but slipped in China and Hong Kong, where Tencent Holdings Ltd. slid after pledging a sharp boost in investment. European and U.S. equity contracts were modestly in the green after the S&P 500 pushed higher and the Nasdaq 100 rallied past its 50-day moving average. Treasury yields maintained a retreat. A pause in this year’s commodity boom continued, hurting the Australian dollar. Gold is around the highest level in more than four months. Its claimed virtual rival, Bitcoin, steadied after a volatile cryptocurrency slump this week.

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

8:00 a.m.: U.K. April retail sales

9:15 a.m.: France May PMIs

9:30 a.m.: Germany May PMIs

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

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

10:30 a.m.: BOE’s Hauser speaks

12:00 p.m.: U.K. sells bills

1:00 p.m.: ECB’s Lagarde speaks

1:45 p.m.: SNB’s Maechler speaks

3:45 p.m.: U.S. May PMIs

7:00 p.m.: Baker Hughes U.S. Rig Count

EU finance ministers meet

G-20 Global Health Summit in Rome

Corporate Events

Earnings include Richemont, Deere & Co

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