Morning Report – Tuesday 30 March 2021

Jon Robson, Head of Trading

“Tougher Covid restrictions in Germany and France have darkened the short-term outlook for the European economy, while a widening spread between U.S. and German bond yields are adding pressure on the single currency.”

Main Headlines

The US President is moving to expand vaccination eligibility, while warning against complacency in the fight against Covid, after Rochelle Walensky, CDC Director said she felt a sense of “impending doom” about surging infections. Walensky said at a briefing on Monday that she feared the trajectory of infections was taking a wrong turn and warned against a premature loosening of social distancing practices. Biden said that 90% of U.S. adults would be eligible for vaccination by April 19, and 90% of Americans would have a vaccination centre within five miles (8 km) of their homes by then, as his team ramps up its drive to get vaccine shots in people’s arms amid a surge in COVID-19 cases.

The UK is to intensify its push to persuade British businesses to commit to the country’s net zero carbon emissions target by 2050 after signing up 30 companies in the FTSE 100 index. The government is to expand its 2050 net zero campaign to the UK’s smaller businesses and is also hoping to secure the backing of more large financial services companies. As hundreds of ships and tankers were held up in the Suez Canal, Russia has been reminding Europe of the benefits of unblockable pipelines and the long-term opportunities of the alternative northern sea route to Asia along its Arctic coast, where the width and depth of vessels are not in question.

GBP

Sterling is stronger versus the dollar in the early morning trade. The UK has urged President Biden to back away from a tit-for-tat tariff war over Britain’s imposition of a “digital services tax” that will hit Silicon Valley tech companies. Liz Truss, UK international trade secretary, said the Biden administration should “desist” from its threat to levy $325m of tariffs on British ceramics, make-up, overcoats, furniture and games consoles. Instead, Truss said the US should engage in international efforts to agree a “fair” way to tax multinational tech companies. Britain, which holds the rotating G7 presidency, is hoping that the Biden administration will agree to a new global system of digital taxation — a process which is being led by the OECD.

EUR

The euro is lower against the dollar and the pound overnight. Turkey’s president Erdogan has fired the deputy governor of the central bank, 10 days after he dismissed its head and sparked a sharp sell-off in financial markets on fears the country was heading for a return to unorthodox monetary policy. Murat Cetinkaya, who had previously worked at Turkish banks and brokerages as well as at the Istanbul stock exchange before joining the central bank in 2019, was dismissed by a presidential decree published in the Official Gazette after midnight on Tuesday. He will be replaced by Mustafa Duman, who was general manager and a board member at Morgan Stanley’s Turkish unit, according to news reports.

USD

The dollar is weaker against the euro and stronger against the sterling this morning. A growing list of businesses are warning that supply-chain bottlenecks, increasing raw material costs and higher labour expenses are beginning to bite. Manufacturing giant 3M has flagged rising air and freight costs to ship its goods, while Walmart has warned on the congestion in US ports. “Costs are going up everywhere,” said Ted Doheny, chief executive of packaging maker Sealed Air. “It’s DefCon 4 [for] us right now. It’s a big deal.” Central bankers and investors expect inflation to accelerate this year as government stimulus and pent-up demand from more than a year of social curbs pumps up the US economy.

Markets

Asia stocks drifted and Treasury yields climbed as investors weighed rapid progress in the U.S. vaccine rollout against the risk of further blow-back from the implosion of Archegos Capital Management. Shares rose in China and Hong Kong while Japan’s index fell, led by banks. Nomura Holdings Inc. said it’s too soon to estimate the impact of losses tied to a U.S. client, identified by Bloomberg as Bill Hwang, head of the troubled investment firm. U.S. futures fluctuated as traders assessed broader Wall Street exposures, while European contracts rose. Earlier, the S&P 500 Index lifted off lows on President Joe Biden’s announcement that 90% of adults will be eligible for the Covid-19 vaccine next month. Gold was down 0.5% at $1,704 an ounce.

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

8:00 a.m.: Germany Feb. import price index

8:45 a.m.: France March consumer confidence

9:00 a.m.: Spain Feb. retail sales, March CPI

11:00 a.m.: Euro-Area March consumer, economic confidence

11:00 a.m.: Italy sells bonds

2:00 p.m.: Germany March CPI

Corporate Events

Earnings include BioNTech, Lululemon

To learn more about Ballinger & Co., please visit our website or our LinkedIn and Twitter pages.