Tuesday 1 June, 2021

“Sterling has soared, hitting its strongest level in three years in the wake of the continued success of the UK’s vaccination programme and plans to lift lockdown restrictions on 21 June. The pound was the best performing G10 currency last month and speculation that the Bank of England may raise rates next year given the improving outlook for growth may drive further bullish bets.”

Sam Cornford, Senior FX Dealer

Main Headlines

Democrats in the Texas House of Representatives have blocked a final vote on a proposed piece of legislation that would tighten voting restrictions and limit ballot access in the second most populous state in the US. Democrats staged a late-night walkout from the legislature, denying the Republican majority the ability to pass the bill. The new voting law is the latest flashpoint in the wider debate over the legislation governing US democracy following President Trump’s attempt to challenge the results of the 2020 election. The news comes as President Biden announced in a Memorial day speech that “democracy itself is in peril.”

Leading scientists in the UK launched a concerted effort to persuade the Government both to delay the scheduled easing of lockdown restrictions on 21 June and increase the pace of second doses. The calls for caution come as concerns grow over a third coronavirus wave, driven by the Indian variant, now renamed the Delta variant by the WHO. Professor Ravi Gupta, a member of the Government’s Nervtag advisory group, told the BBC that there were signs the UK was in the early stages of a third wave with the growth in cases now exponential. Seeking to tread cautiously while preserving the UK’s economic recovery, the Government will announce its decision on 14 June.

GBP

Sterling is stronger against other major currencies this morning, climbing above a previous high set in February. Foreign Secretary Dominic Raab is expected to criticise Russia’s “aggressive behaviour” at a NATO summit in response to President Putin’s recent actions, particularly the decision to increase its military presence on Ukraine’s border. Raab further plans to draw attention to the Putin-backed Lukashenko regime’s forcible diversion of a Ryanair flight in Minsk to arrest an opposition activist.

EUR

The euro is lower against the pound and largely unchanged against the dollar overnight. The EU reportedly plans to lift all quarantine restrictions on those who are fully vaccinated from 1 July, using a digital passport to signify inoculation status. Elsewhere, German Chancellor Angela Merkel and French President Emmanuel Macron have met to discuss possible US spying on European leaders after media reports cited classified documents indicating that the Danish intelligence service allowed access to the country’s internet cables to facilitate eavesdropping. Macron stated that “if the information is correct, then that’s unacceptable between allies, and even less so between European allies.”

USD

The dollar is unchanged against the euro and weaker against the pound in the early morning trade. National Security Adviser Jake Sullivan and Trade Representative Katherine Tai are set to meet a German delegation in Washington this week to discuss the Nord Stream 2 pipeline project after Biden decided not to impost sanctions last week. It is also expected that punitive tariffs introduced by Donald Trump on steel and aluminium imports from Europe will be discussed.

Markets

Stocks and equity futures were steady and commodities including oil rose Tuesday, supported by optimism about the economic recovery from the pandemic. Treasury yields ticked higher. MSCI Inc.’s gauge of Asia-Pacific equities climbed to the highest level in over a month, bolstered by gains in South Korea and Hong Kong. Sentiment was helped by reports signaling manufacturing grew in Asia in May despite Covid-19 flareups. S&P 500 and Nasdaq 100 futures were little changed following a U.S. holiday, while European contracts advanced. Oil jumped after the OPEC+ alliance forecast a tightening market. Commodities from iron ore to copper also pushed higher, a reminder of the rising costs that are stoking concerns about faster inflation and possible reductions in stimulus.

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

8:00 a.m.: U.K. May nationwide house prices

9:00 a.m.: Turkey May manufacturing PMI

9:15 a.m.: Spain May manufacturing PMI

9:45 a.m.: Italy May manufacturing PMI

9:50 a.m.: France May manufacturing PMI

9:55 a.m.: Germany May manufacturing PMI, unemployment

10:00 a.m.: Italy April unemployment

10:00 a.m.: Euro-Area May manufacturing PMI

10:30 a.m.: U.K. May manufacturing PMI

11:00 a.m.: Euro-Area April unemployment, May CPI

11:00 a.m.: Italy 1Q GDP

11:30 a.m.: Germany sells linkers

12:30 p.m.: ESM sells bills

3:45 p.m.: U.S. May manufacturing PMI

5:00 p.m.: BOE’s Bailey speaks

OPEC+ meeting on output

NATO foreign and defense ministers meet virtually

Corporate Events

Earnings and sales updates include Aryzta, Biffa, Zoom Video, HPE

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