Morning report – Friday 26 February

Jon Robson, Head of Trading

“Dollar has been lifted by a sharp increase in U.S. bond yields overnight. The recent rise in inflation-adjusted bond yields indicates a growing belief that central banks may need to pare back ultra-loose policies, despite their dovish rhetoric.”

Main Headlines

US President Joe Biden’s hopes of including a federal minimum wage increase in his $1.9tn stimulus plan have been dealt a setback when the Senate’s parliamentarian ruled that it could not be approved by a simple majority in the upper chamber of Congress. The highly anticipated decision comes on the eve of a vote in the House of Representatives as early as Friday to approve the US president’s package, which will deliver a big fiscal jolt to the US economic recovery.

The Chancellor of the Exchequer, Rishi Sunak, will use the Budget next week to reveal a new UK state-guaranteed loan programme as ministers turn the taps off on the emergency coronavirus schemes which have so far allowed businesses to borrow £73bn. The three existing schemes will become the first main plank of the pandemic support programme to be pulled for new applicants by the chancellor. Sunak is also expected to announce significant rises in corporation tax in his Budget and has been urged by his advisers on tax simplification to make major reforms to capital gains tax.

GBP

Sterling is weaker against most other majors overnight. Sweeping policy changes and reform of London’s company listing regime will spark a “digital big bang” for the City and turbocharge the UK’s fintech industry, according to a government-commissioned review carried out by former Worldpay chief Ron Kalifa. The report, to be published today, warns that the UK’s leading position in fintech is at risk from growing global competition and regulatory uncertainty caused by Brexit.

EUR

The euro is bid higher against the pound and lower against the dollar in early morning trading. The European Central Bank has indicated it will increase the pace of its emergency bond purchases to counter the recent sell-off in eurozone sovereign debt markets if borrowing costs for governments, companies and households continue to rise. Steven Maijoor, chairman of the European Securities and Markets Authority, told MEPs at a hearing on Tuesday that the EU markets watchdog will scrutinise the business models of platforms that have sprung up to offer commission-free trading after the GameStop debacle in the US.

USD

The dollar is higher than other major currencies this morning. US Treasury secretary Janet Yellen sent a letter to her G20 counterparts on Thursday, signalling her provisional backing for more financial support for low-income countries through the IMF to help ease the economic impact of the pandemic. New US unemployment filings fell last week to their lowest level in 12 weeks, in a sign of easing pressure on the jobs market as coronavirus infections slow.

Markets

Benchmark Treasury yields fell back below 1.5% and their Australian equivalents swung amid an unscheduled purchase operation from the country’s central bank. The U.S. 10-year yield traded as high as 1.6% Thursday, when a poorly received government auction led to forced selling by holders of mortgage securities. Japan’s benchmark hovered near its highest level since early 2016. Stocks dropped more than 2% in Japan, South Korea and Hong Kong, and were weaker across the region. S&P 500 futures slipped after the benchmark closed down 2.5% with tech shares leading losses. The Nasdaq 100 tumbled 3.6%, the most since October, as investors rotated into companies poised to benefit from an end to lockdowns. Oil retreated from its the highest in more than a year as traders mulled depleting global inventories. Bitcoin traded below $50,000 again. Gold was steady after an overnight decline.

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

8:00 a.m.: Germany Jan. Import Price Index

8:00 a.m.: Turkey Jan. Trade

8:45 a.m.: France Jan. PPI, Consumer Spending, Feb. CPI, 4Q GDP

9:00 a.m.: Spain Feb. CPI

9:30 a.m.: Sweden 4Q GDP

9:30 a.m.: ECB’s Schnabel speaks

12:00 p.m.: BOE’s Haldane speaks

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

1:30 p.m.: BOE’s Ramsden speaks

5:00 p.m.: Italy’s Franco, Visco hold G20 press conference

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

ESM, France sovereign debt rated by Moody’s

G20 Finance ministers meet

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