Time for a recap

The pound has surged on the foreign exchange markets today, thanks to a cocktail of economic optimism and fading political risks.

Sterling has jumped over a cent and a half to $1.414 against the US dollar, its highest level since late February - and on track for its best day since at least January.

It also jumped over a euro cent to €1.163 tonight, its best session this year.

Several analysts said that worries over an early Scottish independence referendum had faded, after the SNP narrowly missed winning an overall majority in the Scottish parliament.

As Lee Hardman, a currency analyst at MUFG Bank, says:

“With independence risk so far in the future, we do not expect the developments to materially alter our outlook for the pound to continue to trade at stronger levels this year.”

However, the SNP have insisted they will push for a second referendum, meaning a constitutional clash with London could lie ahead.

Hopes that the UK economy will rebound this year also lifted the pound, after the Bank of England hiked its growth forecasts last week, and the government confirmed that the next step of easing lockdown will take place next week.

The pound’s strength dragged on the FTSE 100, where banks, housebuilders and other UK-focused companies had a good day.

European markets nudged higher, as investor confidence across the eurozone hit its highest since 2018.

In New York, the Dow Jones industrial average has hit a fresh record high, over 35,000 points for the first time, but technology companies are sliding.

UK house prices hit a new peak too, with growth at its strongest in five years - triggering warnings that ‘Fear of Missing Out’ was driving the market.

NIERS, the economic research group, has warned that the UK risks widening inequality and rising deprivation after the pandemic, even though growth is expected to be faster than thought.

The economy will grow at its fastest pace in 80 years this year but loss of low wage jobs will lead to rising regional inequality and destitution for years to come (and persistently high levels of child poverty.) Alarming projections from @NIESRorg https://t.co/HkfQSTQiRh pic.twitter.com/DC4UjdMZqD

— Gurpreet Narwan (@gurpreetnarwan) May 10, 2021

The UK government is cutting its stake in NatWest, which it took during the bailout of Royal Bank of Scotland (as it then was) over a decade ago. The sale could raise over £1bn, but will still leave taxpayers owning more than half the bank.

Malaysia’s now-defunct 1MDB state fund is suing subsidiaries of Deutsche Bank, JP Morgan and Coutts & Co to recover billions in alleged losses from a corruption scandal at the fund.

Bakery chain Greggs has raised its profit guidance for this year, indicating it could hit pre-pandemic levels after reporting a strong rebound in sales since the public returned to the high street after the easing of coronavirus restrictions last month.

More than 2,000 jobs are at risk at Provident Financial, as it closes its troubled doorstep lending business.

The owner of British Gas has warned investors it has faced a difficult start to the year, weeks after sacking hundreds of its engineers through a controversial fire and rehire scheme to help turn the business around.

And finally...demand for flights to Madeira has rocketed, after it was placed on the UK’s ‘green list’, meaning holidaymakers won’t need to quarantine.

Goodnight. GW

Britain’s economy is on track to suffer more than £700bn of lost output caused by Covid-19, made worse by the government’s mishandling of the health emergency and Brexit, one of the UK’s leading economics thinktanks has warned.

The National Institute of Economic and Social Research (NIESR) said the UK was facing worse permanent damage than other rich nations due to a “poor Covid-19 response” from Boris Johnson’s government.

Despite an improving growth outlook thanks to rapid progress with the Covid-19 vaccination programme, it said the scale of the UK’s economic collapse last year – the worst annual performance for 300 years – meant Britain was further behind other major economies such as the US and Germany.

The UK’s oldest independent economic research institute said the level of GDP was on track to be almost 4% lower in 2025 than it would have been without the pandemic. Equivalent to £1,350 per person a year, it said the cumulative loss of economic output would be worth £727bn over the five-year period.

“While all countries have seen downgrades in their economic outlooks, those which have handled Covid-19 well are likely to find their long-term growth prospects downgraded by less,” it said.

Here’s the full story:

The FTSE 100 has closed for the day broadly unchanged, but with some sharp swings within the blue-chip share index.

Hopes of an economic rebound lifted UK-focused companies, with housebuilder Berkeley Group finishing 3% higher, Lloyds Banking Group up 2.8%, and Barclays gaining 2.1%.

Jet engine maker/services Rolls-Royce gained 2.8%, while supermarket chain Sainsbury rose 1.9%.

Mining companies also rallied, tracking the surge in commodity prices as demand for metals and coal increases.

But tech stocks fell, as in New York. Scottish Mortgage Investment Trust slumped 6% (it hold stakes in tech firms such as Amazon and Tesla).

Gambling firm Flutter, which has seen its online betting revenues surge in the lockdown, fell 4% while takeaway delivery firm Just Eat dropped 3.3%.

The strong pound also pulled multinationals stocks lower (it makes their overseas earnings a little less valuable in sterling terms).

So the FTSE 100 ended 6 points lower at 7123, slightly down on last week’s 14-month highs.

Back in the markets, the pound is still trading at its highest level against the US dollar in over two months, as political uncertainty fades after last week’s elections.

Relief over the Scottish election results, rising economic optimism, and a generally weaker US dollar are all giving sterling a lift.

It’s now up around 1.5 cents today at $1.413, holding firm at its highest level since February 25th.

The pound is still sharply higher against the euro too, up 1.2 euro cents at €1.163 - on track for its biggest one-day rise against the single currency this year.

As explained this morning, analysts believe that the SNP’s narrow failure to secure an outright majority in the Scottish Parliament means a new independence referendum is less of a short-term risk.

As Reuters explains:

Pro-independence parties won a majority in Scotland’s parliament on Saturday, which Scottish leader Nicola Sturgeon said gave her a mandate to push ahead with plans for a second independence referendum

But the pound strengthened as market participants did not interpret this as a near-term risk as Sturgeon’s party did not win an outright majority. Sturgeon said that her first task was to deal with the COVID-19 pandemic.

“The market has basically judged that she’s certainly not walking away with a very, very strong mandate for a imminent referendum,” said Ned Rumpeltin, head of European currency strategy at TD Securities.

Ricardo Evangelist, senior analyst at ctivTrades, says

The pound is gaining ground on all other major currencies following a weekend dominated by local elections in England and Scotland, with the main takeaways from both being receding political risks for the UK.

The outcome of the Scottish election in particular provided support for the pound, as the SNP failed to secure an outright majority, leading most analysts to predict that London will be able to delay a new Scottish independence referendum for at least a few years, reducing the near-term risk of a break-up of the UK and the detrimental impact such an outcome is likely to have on the value of the currency.

Expectations of a strong recovery are also boosting sterling, with prime minister Boris Johnson due to outline details of the next stage of lockdown easing (from May 17th) later today:

In New York, the Dow Jones industrial average has hit a fresh record high in early trading... but tech stocks are struggling.

Hopes of an economic recovery from the pandemic are lifting energy companies, manufacturers and retailers, as investors put last Friday’s poor jobs report behind them.

This has propelled the Dow, which contains some of America’s largest companies, above the 35,000 point mark for the first time, up around 0.66%

Chemicals producer Dow Inc (+2%) and conglomerate 3M (+1.9%) are leading the risers, followed by oil producer Chevron (+1.75%).

Consumer goods maker Procter & Gamble (+1.7%), construction equipment maker Caterpiller (+1.7%), health retailer Walgreens Boots (+1.6%),drinks giant Coca-Cola (+1.5%) and aircraft maker Boeing (+1.35%) are also in the risers.

#MarketWatch The DOW continues record breaking rally, trades above 35,000 for the first time

— Greta Wall (@GretaLWall) May 10, 2021

Tech stocks are lagging, though, with chipmaker Intel (-2%) and Apple (-1.5%) dropping.

*** DOW 35k Handle ***

— IGSquawk (@IGSquawk) May 10, 2021

Malaysia’s disgraced state investment fund 1MDB is suing Deutsche Bank, Coutts and JPMorgan, in an effort to recover some of the many billions lost in the country’s largest ever corruption scandal, according to reports.

Reuters has the details:

1MDB is claiming $1.11 billion from Deutsche Bank (Malaysia) Bhd, $800 million from J.P. Morgan (Switzerland) Ltd and $1.03 billion from a Swiss-based Coutts unit, and interest payments from all of them, according to the lawsuit.

The claims are premised on “negligence, breach of contract, conspiracy to defraud/injure, and/or dishonest assistance”, 1MDB said in the documents, filed at a Kuala Lumpur court on Friday.

The three companies did not immediately respond to a request for comment on the claims in the lawsuit.

Malaysia’s finance ministry said on Monday that 1MDB and a former unit had filed 22 civil suits seeking to recover more than $23 billion in assets from entities and people allegedly involved in defrauding the fund and its ex-subsidiary. It did not identify any of the individuals or entities being sued.

The FT is reporting that the list of individuals being sued includes Malaysia’s former prime minister, Najib Razak, who was convicted last July in a trial over the 1MBD scandal.

The corruption scandal at 1MDB emerged in2015, when leaked papers first showed that billions of dollars had been borrowed and then allegedly siphoned off - into private bank accounts, property, luxury assets and even film production.

Economic think tank NIESR has raised its growth forecasts for the UK this year -- but also warned that the pandemic risks worsening economic inequality.

NIESR’s central forecast is for UK GDP to rise by 5.7% this year, up from the 3.4% forecast back in February. This upgrade is due to the way firms have adapted to lockdowns, and the successful vaccination programme which will help the economy to reopen.

NIESR says:

Following the worst economic performance among G7 countries in 2020, optimism about the UK recovery is broad-based and well-founded.

The immediate economic effects of the virus, which have been concentrated in the low-waged service sector, are expected to wane, while remaining “negative consequences of Brexit” will impact over the long-run and largely in sectors less affected by Covid-19, NIESR says.

Unemployment is now forecast to peak at 6.5% at the end of 2021, with the furlough scheme protecting jobs. But, NIESR estimates that around 450,000 of the people on furlough will not be taken back when the scheme ends in September.

Last week, the Bank of England predicted a faster recovery -- with growth of 7.25% this year, and unemployment peaking just below 5.5%.

NIESR also flags that Covid-19 will have a greater permanent cost for the UK compared with other major economies.

The size of the economic contraction means that the level of GDP is nearly 4 per cent lower in 2025 than we had forecast it to be before the Covid-19 pandemic, equivalent to around £1,350 per person per year (2018 prices) falling further behind the US and Germany as a result.

NIESR also warns that the UK’s “underinvestment in health and social care capacity had “devastating consequences in 2020”. It also led to the relative economic underperformance during the pandemic, it says, adding:

The long-term challenges of low wage growth, slow productivity and inequalities across regions and between groups of people have not been resolved by Covid-19; indeed, the risk is that they have been exacerbated

The report says that:

• As the higher and rising participation rate is not matched by job creation and vacancy fillings, the unemployment rate in London is projected to be the highest in the UK and to decrease slowly. Elsewhere, there is a lower rise in unemployment, but the pace of the recovery is almost equally slow. The rise in youth unemployment (18–24-year-olds) is particularly alarming, while the number of unemployed persons in the 25-49 year age groups were relatively moderate but increasing.
  
  
• The rise in destitution is projected to be particularly acute in Scotland, the North West, Yorkshire and Humberside and the South East. Equally alarming is the projected incidence of food poverty among children.

NIESR Deputy Director, Dr Hande Kucuk, says:

“Beyond short-term optimism, the outlook for the UK economy is less certain given the economic and social challenges that existed before the pandemic.

Our analysis at sectoral, regional, and household level shows that despite the rhetoric about ‘building back better’ existing inequalities could be exacerbated by the pandemic and an uneven recovery. Now that the worst of the pandemic may be behind us, a new fiscal policy framework is needed to combine clear principles for spending and tax to support the ultimate long run objectives of economic policy – creating the conditions for more robust and inclusive growth.”

The Covid-19 pandemic continues to weigh on British Gas’s parent company, with business customers using less energy and demand for repairs hit by the lockdown.

Centrica has warned it faced a difficult start to the year, weeks after sacking hundreds of its engineers through a controversial fire and rehire scheme, my colleague Jillian Ambrose explains:

In the first quarter of this year, demand for electricity was 15% lower than the year before among the company’s business customers, the company said in a trading update ahead of its annual shareholder meeting.

Home boiler repairs and installations were 11% lower than the same time last year because non-essential home service visits were postponed to help prevent the spread of Covid-19.

The slump in home energy services was also due to a long-running series of strikes by thousands of its engineers in response to the company’s plan to toughen its employment contracts in an effort to boost productivity and become more competitive.

Under the fire and rehire plans, most of Centrica’s 20,000 staff were told to accept the new conditions, which would increase working hours for its engineers, or lose their jobs.

The company confirmed that 460 engineers were dismissed last month, as a result of what the GMB trade union has called “a dirty, bullying tactic”. A survey by the union found that more than three-quarters of the public believe that fire and rehire schemes should be made illegal.

Rob Gill, MD of the independent mortgage broker, Altura Mortgage Finance, reckons that ‘fear of missing out’ is fueling the UK housing boom.

Gill says:

“There is a deep-seated FOMO in the market right now, a fear among buyers that they could ‘miss out’ if they don’t hurry up and buy before prices spiral beyond reach.

As prices accelerate, it’s certainly tempting to forecast it will all end in tears. However, history suggests that low interest rates, Government support and an improving economy are classic ingredients for house prices to carry on rising rather than crash.”

FOMO is a difficult emotion to handle; in the financial world, it can be risky to pile into a popular, fast-rising asset, especially if everyone else seems to be there already.

But for many people, houses aren’t an investment - they’re somewhere to live - and this boom is pushing the first rung of the housing ladder further out of reach.

Nigel Purves, CEO of Wayhome (which lets people part-buy a house, and pay rent on the rest), says the market remains unbalanced:

After a year of remote working, the hunt for extra living space has created a sense of urgency, with many homeowners look to upsize their current properties. Indeed, we found more than a quarter of the UK’s renters and homeowners have seen their property needs change because of prolonged working from home.

“However, this uptick does nothing to help the affordability concerns for many aspiring homeowners who are being rapidly out-priced from the market, pushing that ambition of homeownership farther out of reach. Even with the Government’s 95% mortgage guarantee, many individuals still fall short of the lending criteria they need for the homes they really want, even if they can afford the deposit. We need to find ways to balance the property market, ensuring the confidence remains while helping more people to get a foot on the ladder.”

House prices are rising at their fastest pace in five years after the Treasury’s extended stamp duty holiday prompted a fresh surge in buying last month, Britain’s biggest mortgage lender has said.

The monthly snapshot of the property market from Halifax showed a 1.4% jump in the cost of a home in April – taking the average selling price to a record high of just over £258,000.

The Halifax said almost £20,000 had been added to the average house price since the market came to a standstill during the first coronavirus lockdown in April 2020.

Although the stamp duty relief will be phased out in two stages in June and September, the bank said it expected demand for property to remain strong in the next few months.

Here’s Larry’s story:

The pound is continuing to rally, with several analysts pointing to relief that a new Scottish independence referendum is not seen as an imminent threat.

Sterling has now gained more than a cent against the US dollar today to $1.409, its highest level since late February, as traders digest the election results.

The pound has also gained three-quarters of a euro cent to €1.158, and is also stronger against some other currencies:

#GBP +0.66% against other currencies#GBPUSD 1.40837 +0.68%#EURGBP 0.86326 -0.73%#GBPAUD 1.79108 +0.43%#GBPJPY 153.32 +0.94%#GBPCAD 1.70524 +0.54%#GBPCHF 1.2684 +0.69%#GBPEUR 1.15839 +0.73%

— IGSquawk (@IGSquawk) May 10, 2021

Steen Jakobsen, chief investment officer at Saxo Bank, says sterling is seeing a “relief rally”.

With the SNP finishing narrowly short of an overall majority in last week’s elections, a new Scottish independence referendum is not seen as an imminent threat, he argues.

Jakobsen explains:

The SNP gained one seat versus the prior result, but fell one seat short of the absolute majority expected that would have arguable given the party a stronger mandate to push for a new independence referendum.

The Green Party, also in favour of independence, added a couple of seats, but sterling rose in anticipation that the mandate is too weak after this election result to indicate any immediate threat of a short timeline for a new referendum on Scotland leaving the UK.

Jeremy Thomson-Cook, chief economist at international business payments firm Equals Money, says the election results have created ‘little cause for concern’ for the pound, which is also benefitting from dollar weakness.

The vote north of the border saw the SNP win Holyrood yet again but without a majority and therefore a wafer-thin mandate for another referendum on Scottish independence.

Pro-independence MSPs did secure a majority in Scottish parliament (as flagged earlier), with the pro-independence Scottish Greens winning eight seats in total.

default

But the fact the SNP didn’t get an absolute majority on their own is boosting sterling, agrees Marios Hadjikyriacos, investment analyst at XM,

The pound’s reaction suggests that with the SNP unable to secure that absolute majority, there isn’t a clear democratic mandate to pressure London into granting another referendum anytime soon. Hence, it’s a narrow win for pro-union forces as the Conservative government can keep rejecting calls for another vote.

With political risk fading for now and the Bank of England preparing the ground for ending QE later this year as the British economy kicks into higher gear, the outlook for sterling remains favorable.

However... Kit Juckes of Société Générale isn’t convinced that a second Scottish referendum is now off the table.

The morning G10 mover is sterling. The Conservatives did well in local elections, and the SNP (just) failed to win an outright majority in the Scottish parliament. However, I think the pound’s move is as much about the negative dollar toe and risk-friendly mood, as the news.

I don’t know anyone who thinks the risk of a second Scottish referendum has gone away.

On Saturday, SNP leader and Scotland’s first minister Nicola Sturgeon pledged to press ahead with plans for a second independence referendum once the COVID-19 pandemic was over, which would create a legal and constitutional battle with Boris Johnson.

Investor confidence across the eurozone has jumped to its highest level in over three years, on hopes that Europe’s economy is recovering from the pandemic shock.

Research group Sentix’s gauge of investor morale in the euro zone has risen to its highest level since March 2018, increasing from 13.1 in April to 21.0 in May.

Sentix says:

The economic situation in the Eurozone continues to improve.....the recession caused by the Corona crisis has been overcome.

🇪🇺 *EURO AREA SENTIX MAY INVESTOR CONFIDENCE 21.0 (highest since March 2018); EST 15.0 - BBG pic.twitter.com/4E2BIrhoXU

— Christophe Barraud🛢 (@C_Barraud) May 10, 2021

Sentix’s index of economic expectations reached a record level, suggesting that the acceleration of Covid-19 vaccinations in Europe is helping the region escape the crisis.

Its gauge of ‘current conditions’ also moves into positive territory, reaching its highest level since 2019.

Sentix also warns that the economy is being “overstimulated”, leading to material shortage and soaring commodity prices (as we’ve seen with record iron ore prices this morning).

Manfred Hübner of Sentix explains:

The excellent economic performance is evident in all regions of the world. The overall index for the US reaches an all-time high and rises for the 13th consecutive month. The global economy is now beginning to show clear signs of overheating.

This is likely to prompt central banks to slow down the momentum.

The EY ITEM Club say the government’s latest stimulus measures helped to pump prices up in April, at the fastest annual rate in five years.

• The housing market is showing renewed vigour after new supportive measures were included in the March Budget. These measures include extending the Stamp Duty threshold and introducing a low-deposit mortgage scheme. The extension of the jobs furlough scheme will also likely help the housing market.
  
  
• Prior to these new measures, housing market activity had been showing signs of coming off the boil after strengthening through the second half of 2020.
  
  
• While the EY ITEM Club says the housing market is likely to see near-term vigour and a firming of prices, it believes that the strength of the housing market is outsized relative to the economic fundamentals, and the level of prices increases will ultimately prove unsustainable.
  
  
• The EY ITEM Club suspects house prices will lose momentum again later on this year and could well be flat year-on-year by early 2022 with some quarters of falling prices.

Anna Clare Harper, chief executive of asset manager SPI Capital, points to other factors too -- demand for home-working, limited supply, low interest rates, and a ‘flight to safety’.

‘Firstly, in a context of long-term increases in living standards, many people wanted to move home, encouraged to improve their surroundings by repeated lockdowns. Secondly, it is cheap to borrow, due to very low interest rates, which give buyers a ‘discount’. Thirdly, there is a ‘flight to safety’: in times of uncertainty, people want to put their money in stable assets as a way to diversify their risk from more volatile investments such as the stock market.

‘Looking to the future, these other market drivers are likely to remain strong, throughout 2021. The good news for property investors and homeowners is that property tends to hold its value well through times of uncertainty. Demand stays strong, because we all need a roof over our heads, and new supply is limited.

Jonathan Hopper, CEO of Garrington Property Finders, says optimism as the UK economy emerges from lockdown is another factor:

“Spring is traditionally a busy time for estate agents, but this year’s season has been supercharged by the unleashing of a year’s worth of latent demand from buyers, the wider availability of mortgages and the ‘vaccine effect’ as people start to feel the worst of the pandemic is past.

“For now the yawning imbalance between supply and demand is forcing prices up at breath-taking speed, especially in the hottest hotspots of South West England and parts of Scotland.

“The Halifax data has smashed price records for two months in a row, and with many buyers still clamouring to complete their purchase before the Stamp Duty holiday is tapered away, activity and price growth are set to remain very strong.

“Fortunately the growing sense that the country is accelerating towards the light at the end of the Covid tunnel is starting to encourage more sellers to put their homes on the market too. As supply improves that should help the market achieve better equilibrium, but for now price growth is glowing white hot.”

The UK house price boom continues, with prices rising at their fastest rate since 2016.

Mortgage lender Halifax has reported that prices have jumped by 8.2% over the last 12 months -- taking them to a new record high. That’s the fastest annual growth in five years, according to Halifax’s data.

On a monthly basis, prices rose by 1.4% in April alone (the fastest in seven months), lifting the average price to £258,204.

Strong demand, short supply, and the extension of the Stamp Duty holiday beyond its March deadline are all fueling the market.

Russell Galley, managing director at Halifax, says the average house price has jumped by almost £20,000 since the first lockdown in April 2020, which temporarily froze the market.

“The stamp duty holiday continues to add impetus to an extremely active market, magnifying the current shortage of available homes as buyers aim to take advantage of the Government scheme. The influence of the stamp duty holiday will fade gradually over the coming months as it’s tapered out but low stock levels, low interest rates and continued demand is likely to continue to underpin prices in the market.

Galley adds that some buyers are searching for homes with more space which are better suited to home-working.

The UK’s new government-backed 95% mortgage-guarantee scheme will also lift demand... although Halifax also suspects the market will cool later this year, Galley adds:

Savings built up over the months in lockdown have given some buyers even more cash to invest in their dream properties, while the new mortgage guarantee scheme may have eased deposit constraints for some prospective homebuyers who previously thought their first step on the housing ladder was a few years away.

“There is growing optimism in the long-term outlook of the UK economy as the vaccination programme continues at pace, yet we remain cautious about the medium-term prospects of the housing market. As we said in March, the current levels of uncertainty and potential for higher unemployment as furlough support ends leads us to believe that house price growth will slow to the end of the year.

Provident Financial is to close its doorstep lending business, 141 years after it was first started, in a move that will put 2,100 jobs at risk.

The sub-prime lender will seek to either sell or wind down its consumer credit arm. The cost of either course of action to the company will be as high as £100m, Provident said.

The doorstep lending arm – which offered high-cost loans to people with weak credit histories – had been struggling even before the coronavirus pandemic, losing £21m in 2019. However, those losses expanded dramatically during 2020 to £75m, according to financial results also published on Monday.

The division has started consultations with its 2,100 workers over their future.

Here’s the full story:

UK bakery chain Greggs has hiked its profit forecast this morning, after seeing sales beat pre-pandemic levels since lockdown measures were relaxed.

Greggs told the City that demand for its products (such as sausage rolls, bakes, and buns) has been strong since non-essential shops reopened, and shoppers returned to the high streets.

Since the English lockdown eased in mid-April, sales have been higher than in 2019, it reports.

Greggs says:

We saw a significant pick up in sales with the reopening of non-essential retail from 12 April, in part reflecting the pent-up demand for retail which has boosted High Street footfall.

Our two-year LFL growth since 12 April has been positive.

Greggs now expects profits to be “materially higher than its previous expectation”. They could be around 2019’s levels, if further Covid-19 restrictions are avoided.

Shares in Greggs have jumped over 7% this morning, to the top of the FTSE 250 leaderboard.

Commodity prices are surging again today, as the scramble for raw materials continues.

Iron ore futures have soared 10% - a quite remarkable move - to fresh record highs, amid very strong demand for steel as economies reopen from the pandemic.

On the Singapore Exchange, the June contract of iron ore leaped over 10% to $226.25 a tonne.

Steel prices are also hot, jumping 6%, amid concerns over supply shortages. On Friday, China announced a series of measures on Friday to tighten controls on steel production - to control air pollution and curb “blind investments and disorderly constructions”.

Good Morning from Joburg where China's benchmark iron ore futures surged 10% to a record high, while steel prices rose 6% to hit a trading limit, as Beijing's move to limit capacity fuelled worries about a supply shortage and prompted speculative buying. JSE Top 40 called +0.28%. pic.twitter.com/4kSVE7myeU

— Nick Kunze (@NickKunze2) May 10, 2021

Copper, often viewed as a barometer of the global economy’s health, has jumped to a new record high -- hitting $10,639 a metric ton on the London Metal Exchange, Bloomberg reports.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The pound is rallying at the start of the week, hitting its highest level in over two months.

Sterling has jumped nearly a cent against the US dollar, hitting $1.406 for the first time since late February, as traders digest the results of last week’s elections.

Over the weekend, Scottish Nationalist Party fell just short of an outright majority in the Scottish Parliament, winning 64 of the 129 seats. This appears to be easing some City concerns about a breakup of the UK.

However, the SNP have still won a historic fourth consecutive victory...and there will be a majority of pro-independence MSPs in the new parliament, with the Scottish Greens winning eight seats.

There will be a pro-independence majority in the Scottish Parliament after the election of 64 SNP MSPs and eight Green MSPs.#BBCElections #SP21

All the latest reaction ➡️ https://t.co/eWgDWTRuAV pic.twitter.com/V6xnGvvt9m

— BBC Scotland News (@BBCScotlandNews) May 8, 2021

So the issue has not vanished, with SNP leader Nicola Sturgeon pledging to press ahead with plans for a second independence referendum.

As my colleague Libby Brooks writes:

Nicola Sturgeon has told Boris Johnson that a second independence referendum is “a matter of when, not if” after the Scottish National party secured a historic fourth term at Holyrood on Saturday with a pro-independence majority of MSPs returned despite tactical voting by pro-union supporters.

Scotland’s first minister made the assertion in a telephone call with the prime minister on Sunday evening, despite senior Conservative figures questioning her mandate.

Sturgeon has already signalled her readiness for a constitutional battle, saying her government would legislate for the vote “and if Boris Johnson wants to stop that he would have to go to court”.

Jim Reid of Deutsche Bank tells clients:

In the U.K. the Scottish question will remain in focus with the SNP just failing to win a majority but still seeing a strong set of results. With the Scottish Green Party they do have a pro-Independence majority.

Optimism over the unlocking of the UK economy may also be lifting the pound some support.

From May 17, pubs, cafes and restaurants will be able to host customers indoors for the first time in months -- for groups of up to six or two households.

Cinemas, galleries and the rest of the accommodation sector will also reopen, as hospitality restrictions are lifted due to the fall in Covid-19 infections. This should underpin hopes of an economic recovery this year.

The pound is also benefitting from the weaker dollar, which slid on Friday after a surprisingly weak US employment report. The news that just 266,000 new jobs were added last month has dampened some optimism over the pace of the recovery

European stock markets are set to rally this morning, with investors calculating that weaker jobs growth means central bankers won’t be rushing to end their stimulus measures.

European Opening Calls:#FTSE 7155 +0.35%#DAX 15434 +0.22%#CAC 6387 +0.02%#AEX 719 +0.09%#MIB 24705 +0.38%#IBEX 9100 +0.45%#OMX 2269 +0.39%#STOXX 4042 +0.19%#IGOpeningCall

— IGSquawk (@IGSquawk) May 10, 2021

The agenda

• 8.30am BST: Halifax UK house price survey for April
• 10am BST: Research institute NIESR latest UK and global economic forecasts
• 2.45pm BST: ISM New York Index of economic activity in April