Morning Report – Thursday 28th May

Main Headlines

The U.S. House passed a bill authorising sanctions against Chinese officials responsible for human rights abuses against Muslim minorities. The vote came on the same day the White House said Hong Kong is no longer politically autonomous from China, a move that could revoke the city’s special trading status with the U.S. China said Hong Kong is an internal affair and will take “necessary countermeasures in response.”

Angela Merkel, spoke before the U.S. bill passed and said the EU has a “great strategic interest” in maintaining cooperation with China and she plans to prioritise their relationship when Germany takes over the six-month rotating EU presidency on July 1.

Stocks have continued advances globally, with Asian equities holding and S&P 500 futures at the highest level since the pandemic took hold in March. European equities are on track for their best May advance since 2009. The Stoxx Europe 600 Index is up 2.9% this month, with the rebound getting fresh impetus in recent sessions as countries restart economic activity and announce plans to lift travel restrictions, boosting tourism. The offshore yuan slipped despite a stronger than expected daily fixing in mainland China. Treasuries were steady and Gold gained with base metals. European futures signal more gains this morning. WTI crude dropped below $32 a barrel.

GBP

The BOE is ready to do more to revive growth. Cutting interest rates into “unprecedented territory” is one option, Governor Andrew Bailey wrote in a Guardian op-ed. Sterling was under pressure yesterday as investors’ focus shifted back to the possibility of negative interest rates in Britain and on comments from government officials that not much progress had been made in Brexit negotiations. Britain told the European Union on Wednesday it needed to break a fundamental impasse to clinch a Brexit trade deal by the end of the year and said an agreement on fisheries might not be ready by July. Britain’s negotiator with the EU, David Frost, also reiterated that the UK would not extend the Brexit transition period beyond December.

EUR

The euro headed towards a two-month high on Wednesday after the European Commission proposed a coronavirus economic recovery package worth in total 1.85 trillion euros. German inflation continues to slow. The euro has struggled since falling in March against a backdrop of safe haven demand for dollars. If the proposal can win over EU members sceptical of an earlier Franco-German plan, the euro could potentially trade higher. Flash CPI data for May are expected to show price growth slid to 0.7% from 0.8%, according to consensus.

USD

The Fed said the U.S. business outlook remains “highly uncertain and most contacts were pessimistic about the potential pace of recovery.” St. Louis’s James Bullard said April was likely the worst of it, though, and New York’s John Williams agreed we’re close to the low point. U.S. initial jobless claims due today are expected to stay high by historical standards but will be an improvement from previous weeks. Consensus sees new filings totalling 2.1 million for the week ended May 23. The second print of Q1 GDP is also to be released today and will probably still show a consensus 4.8% contraction, while durable goods orders are seen plummeting 1.1% in April.

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

• 8:00 a.m.: Turkey May economic confidence
• 8:00 a.m.: Spain May CPI, April retail sales
• 8:30 a.m.: ECB’s Villeroy speaks
• 9:00 a.m.: Italy May consumer, manufacturing confidence
• 10:00 a.m.: Euro-Area May consumer, economic confidence
• 11:00 a.m.: BOE’s Saunders speaks
• 1:00 p.m.: Germany May CPI
• 1:30 p.m.: U.S. initial jobless claims, Q1 GDP
• 4:00 p.m.: EIA crude oil inventories report
• Poland rate decision

Corporate Events

• Earnings include Knorr-Bremse, Salesforce, Costco, TD Bank, Dell

Corporate Highlights

• Carl Icahn sold his entire 55.3 million shares, about 39%, of Hertz, calling off a roughly 6-year bet that lost him almost $1.6 billion.
• Japan’s Nissan Motor Co will close its factory in Barcelona, resulting in the loss of about 2,800 jobs.
• SoftBank is planning deep cuts within its Vision Fund investment arm. The fund lost 1.9 trillion yen ($17.7 billion) last fiscal year after bets on WeWork and Uber soured.