Tuesday 15 June, 2021

“The dollar remains well bid as market participants hold their breath as the Fed begins a two-policy meeting. While there are no immediate changes to monetary policy expected, and Powell has stressed that ample warning will be provided before tapering, recent economic data and higher inflation threatens an earlier than anticipated stimulus withdrawal”.

Sam Cornford, Senior FX Dealer

Main Headlines

In a boost to transatlantic relations, the Biden administration and the EU are poised to resolve a 17-year dispute over aircraft subsidies ahead of President Biden’s first EU-US summit in Brussels today. The potential breakthrough follows two days of intensive negotiations in Brussels and would remove the possibility of EU and US consumer goods suffering from punitive tariffs again. Elsewhere, Biden is due to meet ‘worthy adversary’ Vladimir Putin in Geneva on Wednesday. The US President has indicated that while the US is not looking for confrontation with the Kremlin, US-Russia relations would be severely damaged if anti-corruption campaigner. Alexey Navalny dies in prison.

Prime Minister Boris Johnson last night delayed the lifting of all coronavirus restrictions in England until 19 July as the more infectious Delta variant continues to spread throughout the country. The vaccination rollout is expected to be accelerated to confer protection on a greater proportion of the population. Johnson said he was “pretty confident” that restrictions would end on the new date but refused to offer a “cast-iron guarantee” despite mounting discontent amongst Conservative backbenchers.

GBP

Sterling is stronger against other majors this morning. The UK and Australia have agreed an in-principle free trade deal with prime ministers Boris Johnson and Scott Morrison set to announce the agreement later today. It is the first significant bilateral agreement negotiated by the UK since Brexit and is expected to cut tariffs on products like Scotch whisky, clothing, cars and, controversially, agricultural products. Meanwhile, a real-world Public Health England study found that vaccines are highly effective against the Delta variant: the Pfizer jab is 96% and AstraZeneca is 92% effective against hospitalisation after two doses.

EUR

The euro is stronger against the dollar and weaker against the pound overnight. Following the NATO summit, which highlighted growing concerns over China’s expanding military power, German Chancellor Angela Merkel cautioned NATO to maintain a sense of balance in its interactions with China, as the transatlantic alliance warned that Beijing poses “systematic challenges” through disinformation and military cooperation with Russia. Meanwhile, EU health ministers are set to meet in Luxembourg later today to discuss methods of boosting access to crucial medicines across the bloc, which is likely to include provisions for smaller member states.

USD

The dollar is lower against most other major currencies in the early morning trade. President Biden is due to meet with European Council president Charles Michel to focus on a joint response to the Covid-19 pandemic and foreign affairs and later with European Commission president Ursula von der Leyen where climate and trade policy are expected to dominate the conversation. Elsewhere, Biden and Turkish president Recep Tayyip Erdogan held a bilateral meeting yesterday following the NATO summit but failed to achieve progress on the contentious issue of Ankara’s purchase of a Russian missile-defense system. After Erdogan announced that his government’s position is unchanged, the lira fell about 1%.

Markets

U.S. and European equity futures climbed Tuesday, while Asian stocks were mixed, as investors mulled this week’s key Federal Reserve meeting. Commodities retreated. Japanese shares gained, while Australian stocks outperformed after a holiday. Chinese equities declined on concerns about liquidity and as metals prices slid led by copper. Gains in technology shares had pushed the S&P 500 to a record Monday, though three stocks fell for every one that rose. The 10-year Treasury yield pulled back under 1.5% while Bitcoin briefly climbing above $41,000 only to pull back. Crude oil traded around $71 a barrel.

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

8:00 a.m.: Saudi Arabia May CPI

8:00 a.m.: U.K. April Unemployment

8:00 a.m.: Germany May CPI

8:45 a.m.: France May CPI

10:00 a.m.: Italy May CPI

10:00 a.m.: ECB’s Rehn speaks

10:30 a.m.: Spain sells bills

11:00 a.m.: U.K. sells bonds

11:00 a.m.: Euro-Area Trade Balance

11:30 a.m.: Germany sells bonds

12:00 p.m.: ECB’s de Cos speaks

12:30 p.m.: U.K. sells bonds, ESM sells bills

1:00 p.m.: ECB’s Lane speaks

2:15 p.m.: BOE’s Bailey speaks

2:30 p.m.: U.S. May Retail Sales

3:50 p.m.: ECB’s Panetta speaks

5:30 p.m.: Israel May CPI

6:00 p.m.: Russia 1Q GDP

EU-U.S. summit in Brussels

U.K.’s Johnson holds talks with Australia’s Morrison

Corporate Events

Earnings and sales include Ashtead, H&M, boohoo

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