Good Morning,

After a data heavy session on Friday, there was a lot of positives to take as the markets finished strong in the UK with UK Services PMI hitting the highest level since November 2003, printing 60.3 vs 56.4 the month prior as the UK begins to ease lockdown, helping the Pound claw back some losses made earlier in the week as it ran out of steam after testing key levels to the upside. One thing noted in the Markit report ws that although the reading was a big positive and bodes well for a strong bounce back for Q2, this was partially due to supplier’s increasing delivery times which again reflects the strain on supply chains across the globe and it’s filtering affect into the UK, the FT has more here.

In Europe, articles appeared last night claiming Italy had reached an agreement with the European Commission in a recovery deal to aid the Coronavirus ravaged nation to the tune of around EUR 226bn, this is the latest success for Draghi and will be well received in the multi-party cabinet.
Following on from this, another report surfaced this morning that the ruling parties in Poland are willing to sign a new coalition deal, something that could have a positive knock-on effect for the €750bn EU recovery fund as Poland was one of the countries that was potentially holding this up. This comes after further positives on the EU side with European PMIs for both Manufacturing and Composites posting stronger than expected prints – strengthening the EUR to 2-month highs against the Dollar at 1.2100 and sub 1.15 versus the Pound.
India’s Covid situation continues to worsen, with the country recording around 1 million cases in the last 3 days alone and with PM Modi resisting calls for a national lockdown, it shows no sign of slowing with India having exceeded the January US peak of cases on Friday. As of today, India has upwards of 17 million cases and counting.
This is beginning to have a broader impact on markets, with India being the third largest consumer of Oil and a country that was largely expected to match and even exceed expected pre-pandemic levels of consumption. Traders were of the mind that this leading country in global recovery would allow producers to begin relaxing output cuts without weakening the oil price too much will now have to rethink this plan as things begin to deteriorate. Expectations for double digit growth (12.5% previously mentioned) which seemed a certainty for India have been curtailed for now, with India Nifty 50 exchange down around 2.5% on the month of April and the Rupee also suffering losses of around 3% vs most G10 pairs for the month.
Stateside, Equities took a knock late on Thursday with President Biden announcing potential tax hikes from 20% to 39.6% for the top earners in the US (earning $1m plus annually). This should have not come as a surprise as this is in line with his manifesto on the campaign trail and the reality is that funds will need to start coming in from somewhere as the US gets back on the road to recovery. Investors however read this as the longer term impact this could have on investment and institutional funds flow into the US, coupled with the announcement of a corporate tax increase from 21% to 28% only 2 weeks ago, the argument on the Republican side of the aisle is that this could lead to future cuts in investment and consequent increases in employment in the US, Bloomberg has more here.

In Europe and the US, countries breathed a sigh of relief as the Russian defence ministry announced on Friday that it had begun returning troops back to their permanent bases following the build-up of approximately 100,000 troops in Crimea and along the Ukrainian border as tensions reached boiling point. This follows US imposed sanctions on Russia last week whereby in retaliation, Moscow asked 10 US diplomats to leave the country and recommended the US ambassador to Russia return to the US for consultation with the Biden administration. This remains a timely reminder to the West of Russia’s influence and how fragile relations remain, especially with Ukrainian President Zelensky angling to bring closer ties to the EU and US through NATO membership, something not realistically considered at this stage by the nation states given the reluctancy to match Putin’s aggression head on, the FT has more.

Looking forward to this week, we have the Fed in focus on Wednesday where it is expected that even as the US opens up and the economy rebounds, Chairman Powell is thought to have the view that the Fed is in no hurry to taper any ongoing monetary support and his statement is expected to acknowledge the continued recovery at a good pace but fall short on clarifying any further guidance. Towards the back end of the week, we will have US Q1 GDP figures on Thursday which are expected to come in at a strong 6.5% and Eurozone Q1 GDP at a less flattering -1.6% which should give the market an update on where global recovery stands as we move into May next week. The London session has kicked off with a clear risk on tone with USD off and GBP and EUR on the front foot to get the day started.

Have a great week and be well.

This report was brought to you by Daniel Jones

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