Wednesday 19 May, 2021

 “We’ve been seeing global stocks slipping and cryptocurrencies sinking this morning as a threat of unwanted inflation had investors shy away from assets seen vulnerable to any removal of monetary stimulus. While demand is recovering fast and vaccinations are progressing, companies are still challenged by shortages, stoking worries of higher prices.”

Sam Cornford, Senior FX Dealer

Main Headlines

Janet Yellen, the Secretary of the US Treasury, said US companies would see higher profits and greater competitiveness under Joe Biden’s $2.3tn infrastructure plan, in a bid to overcome corporate America’s scepticism as the package moves through Congress. Yellen called on top US executives to embrace Biden’s sweeping infrastructure bill in spite of the increase in the US corporate income tax proposed to fund it. Her intervention comes as negotiations between the White House and Republicans over a compromise deal are heating up. Retailers offered a rosy picture on the health of the US consumer on Tuesday after reporting strong quarterly sales, as people armed with government stimulus cheques hit the shops in person and online. Walmart recorded the strongest first-quarter sales in its history.

The Institute of Directors and R3 that the UK tax authority must work with companies struggling to repay debt built up during the pandemic after temporary measures preventing the use of winding up petitions expire next month or risk a wave of insolvencies. The group wrote to Kwasi Kwarteng, the business secretary, urging him to work with HM Revenue & Customs to help businesses at risk of collapse. Chinese banking and internet industry associations said that financial and payment institutions should not accept cryptocurrencies as payment or offer services and products related to them, leading bitcoin to tumble 14% to its lowest level since early February.

GBP

The pound is weaker against major currencies overnight. The Bank of England is watching movements in the prices of goods and services “extremely carefully” for signs that UK inflation is about to rise persistently above the central bank’s target, governor Andrew Bailey said yesterday. He told parliament that the BoE’s Monetary Policy Committee would not tolerate a persistent overshoot in inflation from its 2 percent target — signalling it could raise interest rates in such a scenario — but said he saw little evidence of this happening at present. His comments came ahead of the latest UK inflation figures due to be published later today, with economists expecting the rate to jump from 0.7 per cent in March to 1.5 per cent in April.

EUR

The euro is well bid against all majors in the early morning trade. The eurozone economy has begun to recover from the pandemic according to high-frequency data indicators which offer early evidence that it will log a strong second-quarter rebound from its double-dip recession. An increase in the number of job adverts, growth in travel to entertainment and leisure venues and rising holiday bookings all suggest that economic activity is bouncing back despite continuing restrictions to control the spread of the virus. Angel Talavera, economist at Oxford Economics, said: “The recovery has already started in the eurozone, based on several high frequency indicators.” He expects eurozone gross domestic product to expand at 1.5 per cent quarter on quarter in the three months to June.

USD

The dollar is higher than the pound but lower than the euro this morning. Lawrence Summers, the former US Treasury secretary, has sharply rebuked the Federal Reserve for its loose monetary policies, accusing the central bank of creating a “dangerous complacency” in financial markets and misreading the economy. Summers also said that monetary and fiscal policymakers had “underestimated the risks, very substantially, both to financial stability as well as to conventional inflation of protracted extremely low interest rates”. The Harvard University economist and former top Democratic presidential adviser had already criticised Joe Biden’s fiscal stimulus as overly excessive earlier this year.

Markets

Asian stocks fell with U.S. and European equity futures Wednesday as concerns about faster inflation and Covid-19 flareups in some nations rattled investors. A dollar gauge was near the lowest level this year. Australian equities had their worst day in almost three months. Shares also fell in Japan and China after key U.S. equity benchmarks closed lower and large technology stocks like Amazon.com Inc. and Microsoft Corp. erased gains. S&P 500 and Nasdaq 100 futures were in the red along with European contracts. Bitcoin and other cryptocurrencies extended a tumble in part after the People’s Bank of China conveyed a statement reiterating that digital tokens can’t be used as a form of payment. A slide in crude on rising U.S. stockpiles and the possibility of more supply from Iran hurt energy stocks. Treasury yields were steady. Gold was at $1,871.75 an ounce.

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

8:00 a.m.: U.K. April CPI, RPI, PPI

8:00 a.m.: EU April new car registrations

8:00 a.m.: ECB’s Panetta, Rehn speak

10:30 a.m.: U.K. March house price index

10:30 a.m.: Iceland rate decision

11:00 a.m.: Euro-Area April CPI

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

11:30 a.m.: Germany sells bonds

1:00 p.m.: Russia sells bonds

4:30 p.m.: ECB’s de Cos speaks

4:30 p.m.: EIA Crude Oil Inventory Report

ECB’s Lane speaks at the Dublin Climate Dialogues

ECB publishes Financial Stability Review

Corporate Events

Earnings include Experian, Porsche, Telecom Italia, Lowe’s, Target, JD.com

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