Morning report – Monday 1 March

Jon Robson, Head of Trading

“Last week’s sell-off in global bonds, triggered by worries that monetary policies could start to tighten, eventually spilled into equities, commodities and foreign exchange. Once the volatility in bond markets recedes, the dollar should decline, though that process may take several sessions to trickle through.”

Main Headlines

US Treasury secretary Janet Yellen has told G20 finance ministers that Washington will drop a contentious part of its proposal for reform of global digital taxation rules. The provision would have allowed technology companies to abide by any agreement on a voluntary basis, and had been the main stumbling block to an agreement. Yellen’s announcement marks an early change in international economic policy by the Biden administration that could herald an improvement in transatlantic relations.

The UK’s rapid rollout of Covid-19 vaccines will foster a faster economic recovery, requiring fewer tax rises than feared, official Budget forecasts will show this week, as the number of people receiving their first jab passed 20m. Rishi Sunak is still concerned about “enormous strains” in the public finances and has paved the way for tax rises in Wednesday’s Budget, but the outlook has improved significantly this year thanks to the vaccine programme. In its Budget forecasts, the independent Office for Budget Responsibility will set out optimistic and pessimistic scenarios for the economy, based on the likely path of the pandemic, and adjust its central forecast accordingly.

GBP

Sterling is stronger against other majors overnight. Chancellor Rishi Sunak is to announce a £5bn “restart” grant scheme in his Budget to help the British high street recover from the Covid-19 crisis, promising on Sunday that there was “more to come”. The grants, worth up to £18,000 each and aimed at shops, pubs, hotels and other businesses most affected by the crisis, will take total spending on such measures to £25bn over the past year.

EUR

The euro is stronger against the dollar and weaker against the pound this morning. Risk-averse Europeans have embraced share trading during the coronavirus pandemic, encouraged by soaring stock markets, rising household savings and the popularity of low-cost trading platforms. The number of people in Germany who own shares directly or via funds rose by 2.2m to 12.4m last year — with the sharpest rise among those aged under 30, according to a recent report by the Deutsches Aktieninstitut, which represents German publicly traded companies.

USD

The dollar is weaker versus other major currencies in early morning trading. The US drugs regulator has decided to grant emergency approval in the coming days to Johnson & Johnson’s coronavirus vaccine, making it the country’s third vaccine and the first to require only a single shot. The House of Representatives passed a $1.9tn coronavirus relief package, as US president Joe Biden cleared the first big hurdle on the way to securing congressional approval for his economic stimulus bill.

Markets

Benchmark Treasury yields fluctuated around 1.40% and Australian and New Zealand debt rallied. Australia’s 10-year yield slid the most in a year after the central bank doubled down on bond purchases to pacify fixed-income markets. S&P 500 and Nasdaq 100 equity futures advanced, while Japan led a bounce back in Asian stocks. On Friday, the S&P 500 slipped and tech stocks staged a modest rebound as Treasuries recovered from a pronounced selloff. Commodities rose as oil topped $62 a barrel. Gold rose 1.2% to $1,754.69 an ounce.

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

8:00 a.m.: Turkey Feb. Manufacturing PMI, 4Q GDP

9:15 a.m.: Spain Feb. Manufacturing PMI

9:45 a.m.: Italy Feb. Manufacturing PMI

9:50 a.m.: France Feb. Manufacturing PMI

9:55 a.m.: Germany Feb. Manufacturing PMI

10:00 a.m.: Euro-Area Feb. Manufacturing PMI

10:30 a.m.: U.K. Jan. Mortgage Approvals, Feb. Manufacturing PMI

11:00 a.m.: Italy Feb. CPI

11:30 a.m.: Germany sells bills

2:00 p.m.: Germany Feb. CPI

2:50 p.m.: France sells bills

3:45 p.m.: U.S. Feb. Manufacturing PMI

4:20 p.m.: ECB’s Guindos, Makhlouf and Villeroy speak at conference

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