Good morning
Brent dropped over 3% after reports began to emerge after progress was touted on a breakthrough in negations for the US and Iran Nuclear deal to be back on the radar as the Biden Administration looks to mend the relationships and diffuse tensions between the two countries ramped up by the prior Administration. The caveat to this is the Russian diplomat that this news was sourced from quickly backtracked that there had been a significant breakthrough in talks by stating that unresolved issues remain. Talks between Washington and Tehran restart today so this will be one to watch for the remainder of the week to see if any breakthrough is made. Brent remains up around 30% in 2021 as part of the global rise in commodities that we have seen as traders bet on continued recovery and re-opening of economies across the globe.
Looking away from fossil fuels, 2021 is suggested to be the year that banks finally begin the shift to green. With the re-commitment from the US to the Paris Agreement originally signed in 2016, since this point, almost $3.6tn in investment has flowed into fossil fuels whereas data collated by Bloomberg for this year shows $203bn has been financed for green and renewable projects vs $189bn to businesses focused on hydrocarbons. This could underline the future shift and gradual move away from fossil fuels into renewables which is at this point is being led by the institutions financing – https://www.bloomberg.com/graphics/2021-wall-street-banks-ranked-green-projects-fossil-fuels/?srnd=premium-europe.
An interesting article from Bloomberg regarding the fallout from Archegos Capital, with the new acting chief of the OCC (Office of the Comptroller of the Currency) Michael Hsu, stating that there is a risk of overconfidence on Wall Street, the type that has led to a number of investment banks having to stomach huge losses equating to around $10bn when the firm blew up in May – https://www.bloomberg.com/news/articles/2021-05-18/archegos-blowup-points-to-bank-complacency-top-regulator-says
The Euro continues to benefit from a much-improved roll out of vaccinations along with gradual reopening of economies with EURUSD pushing back to year-to-date highs and technicals suggesting a move to break 3-year highs helped along with a weaker USD across the board up to 1.2500.
In the US, there has seemingly been a softening of stance towards Russia from President Biden as it was leaked last night the Biden Administration is planning to waive sanctions against the company building the Nord Stream 2 pipeline. The pipeline that is 90% complete, branching from Russia to Germany – Politico has more here – https://www.politico.com/news/2021/05/18/biden-sanctions-nord-stream-pipeline-489437.
Bitcoin has now given up all its gains since Elon Musk first announced in February Tesla had taken its cash to buy a chunk and has led a continued sell off in cryptocurrencies with Bitcoin leading the charge with it down 40% from its record of $65,000 with it now back below $40,000. This drop was also increased as Chinese regulator announced a crackdown on firms using cryptocurrencies which was part of Beijing’s campaign to limit activity ahead of an expected ‘digital Reminbi’ whereby they will have control over cryptocurrencies.
This morning’s UK Year on Year Consumer Price Index for April more than doubled vs the prior month, with it standing at 1.5% vs 0.7% in March. A barometer for inflation in the UK, the BoE have recently said inflation will likely head past its 2% target to 2.5%, thanks in large due to the huge rise in oil prices and other commodities along with the cut in Covid associated support from the Treasury in September. The data dump has had little impact on GBP as it continues to consolidate across most pairs after a big move on Monday.
For the remainder of the week, we look ahead to the FOMC minutes tonight, where last month’s big miss on Non-Farm Payrolls of 266k vs expectations on 1m + is likely to throw a spanner in the works for Fed Chairman Powell with traders looking at any indications on any change in rhetoric that could shape the course of the USD over the coming months. We round off the week with Manufacturing and Services PMI data across Europe which should continue to support the EUR based off the data sets we have seen from the Europe over the last month or two.
Have a great day.
This Morning Report was brought to you by Daniel Jones
