Morning Report – Tuesday 23 March

Main Headlines

US President Joe Biden is set to consider a plan from his top advisers to plough roughly $3tn in government spending into the American economy with investments in infrastructure, clean energy, and education. The additional fiscal support for the US recovery would closely track Biden’s 2020 presidential election pledges to tackle some of the structural deficiencies afflicting the country’s economy. It is expected to be partially offset by increases in taxes on wealthy households and corporations. It would represent the second stage of Biden’s ambitious economic agenda, after Congress approved a $1.9tn stimulus plan to deliver immediate relief to households during the pandemic. Biden’s advisers have turned to infrastructure and education investment plans in the wake of the stimulus bill and are expected to present the president with more detailed proposals this week.

Boris Johnson has sent an emissary to Brussels to end a bitter stand-off over vaccines, calling for “international co-operation” and warning that a surge in Covid-19 cases in the EU would end up hitting the UK. Speaking on Monday ahead of the anniversary of Britain’s first lockdown, Johnson said Britain and the EU were in the same boat: “On the continent right now you can see, sadly, there is a third wave under way,” he said. Tim Barrow, Britain’s former ambassador to the EU, was dispatched to Brussels to try to defuse the looming vaccine war and to offer British support to efforts to boost production capacity. Vaccines have emerged as the latest flashpoint in relations between the EU and UK as the two sides deal with the consequences of supply shortfalls from AstraZeneca.

GBP

The pound is weaker against other major currencies this morning. Chancellor Rishi Sunak will hold back from embarking on a large number of public consultations on potential revenue-raising tax measures when the Treasury publishes a raft of consultations on Tuesday. Dubbed “tax day”, the measures will include proposals to cut the bureaucracy involved with inheritance tax for those dying with smaller estates, but Treasury officials say there will not be any consultations on reforming tax reliefs on pension contributions, capital gains tax or increasing taxes on the self-employed. The tax policy and consultation update, for the first time separated from the Budget, is not a backdoor mechanism to raise taxes without telling people in the Budget, the Treasury has said.

EUR

The euro is stronger against the pound and weaker against the dollar in early morning trading. Several European countries are extending or reintroducing lockdown measures as a third wave of the pandemic sweeps the continent fuelled by more contagious new variants of coronavirus such as the B117 mutation first detected in the UK. Germany is set to impose a five-day lockdown over Easter. Critics say the further restrictions have come too late, with politicians eager to start easing measures for pandemic-weary populations. The variant first found in Britain is spreading significantly in at least 27 European countries and is now dominant in Denmark, Italy, Ireland, Germany, France, the Netherlands, Spain and Portugal, according to the World Health Organization. “The spread of the variants is driving the increase,” Hans Kluge, the WHO’s Europe director, said last week. “But so is the opening of society when it is not done in a safe and a controlled manner.”

USD

The dollar made gains on most other majors overnight. The US, EU, UK and Canada have imposed sanctions on China over its treatment of Uyghur Muslims in a co-ordinated move that sparked an immediate retaliation from Beijing. Travel bans and asset freezes have now been imposed on four officials and a security organisation over persecution and mass internments of Uyghurs in the Xinjiang region. The moves came ahead of the arrival of US secretary of state Antony Blinken in Brussels later on Monday. The sanctions from the western powers cover high-level officials and entities in Xinjiang with direct connections to the internment camp system. Blinken said the sanctions demonstrated “our ongoing commitment to working multilaterally to advance respect for human rights”.

Markets

Asian stocks fell Tuesday as Treasuries and the dollar edged higher, with traders monitoring some setbacks in the fight against the pandemic and braced for U.S. auctions that will test demand for bonds. Equity indexes slipped across the region, and China’s CSI 300 neared its year-to-date low. U.S. equity futures retreated following an overnight rally on Wall Street that saw the Nasdaq 100 outperform the S&P 500, aided by a drop in long-term borrowing costs. European contracts pointed lower after Germany said it would impose a hard lockdown over Easter. The 10-year U.S. Treasury yield subsided further from the highest in about 14 months amid hopes of improved demand in this week’s heavy round of sales. Oil prices slid and New Zealand’s currency tumbled after the government took steps to rein in surging property prices, cooling speculation about central bank rate hikes. In Turkey, a drop in the main stock index triggered a circuit breaker.

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

8:00 a.m.: U.K. Jan. unemployment

9:40 a.m.: BOE’s Haldane speaks

10:00 a.m.: Italy Jan. Industrial Orders

10:55 a.m.: BOE’s Cunliffe speaks

11:00 a.m.: ECB’s Villeroy speaks

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

12:50 p.m.: BOE’s Bailey speaks

1:00 p.m.: Turkey sells bonds

1:30 p.m.: Bank of Spain outlook

2:00 p.m.: Hungary rate decision

Eurex Derivatives Forum Frankfurt 2021

Parliamentary elections in Israel

Corporate Events

Germany’s Merkel hosts a summit for CEOs of carmakers

Earnings include GameStop, Adobe, Porsche

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