Morning Report

February 18, 2022

“Strong UK retail sales figures have added to a raft of data that are likely to convince the Bank of England the UK economy is recovering strongly enough to cope with a third-straight interest rate hike in March.”

Tim Hallinan – Trading Director

Main Headlines

Joe Biden has warned that Russia is on the brink of invading Ukraine within “several days”, saying the US believes the Kremlin is engaged in “a false flag operation to have an excuse to go in.” The US president spoke as Kyiv and Moscow blamed each other for clashes in Ukraine’s eastern Donbas region, incidents the west fears will be used as a pretext for a co-ordinated Russian military campaign. Russia reiterated its threat to take “measures of a military-technical nature” after it complained that the US had “twisted” draft proposals Moscow put forward to address its concerns about European security. Biden is set to discuss the crisis with transatlantic leaders on Friday. Antony Blinken, US secretary of state, invited his Russian counterpart Sergei Lavrov to meet in Europe next week to prepare a possible summit of pivotal leaders to resolve “mutual security concerns.” The White House has previously called the Kremlin’s claims that it is withdrawing forces from the Ukrainian border “false” and accused Russia of increasing its troop presence in the region by about 7,000 in recent days. US officials declined to provide more details to substantiate the claims, but said the intelligence was “fairly authoritative”. On Tuesday, Biden said Russia had concentrated about 150,000 troops on its border with Ukraine and in neighbouring Belarus.

Health leaders have warned against the premature relaxation of pandemic restrictions in England, suggesting that plans to clear record NHS waiting lists could be at risk, and challenged ministers to disclose the scientific basis for their “living with Covid” strategy. A poll of more than 300 senior NHS leaders by the NHS Confederation, which represents health organisations in England, Wales, and Northern Ireland, found more than eight out of 10 opposed an end to free lateral flow tests, a move being considered by the government. Prime Minister, Boris Johnson, this month proposed the abolition of the legal requirement to self-isolate in England after a positive Covid-19 test. However, more than three-quarters of respondents to the confederation survey rejected the idea, which Johnson suggested could come into force in late February. The confederation suggested a plan to clear NHS waiting lists, which now stand at more than 6mn, might be in jeopardy if such measures to reduce infections were removed. Chief Executive, Matthew Taylor, said elective treatments, access to general practice and other routine care provided by the NHS could all be disrupted “if further strains of coronavirus were allowed to spread across the country with reduced national oversight.”


Sterling is stronger against the dollar and euro this morning. A former minister who played a key role in Australia’s controversial asylum seeker ‘pushback’ policy has been hired to shake up Britain’s border measures. Priti Patel will announce today that Alexander Downer, ex-minister for foreign affairs Down Under, will carry out a thorough review of the UK Border Force. People are returning to UK offices in their greatest numbers since the start of the pandemic, as mandates from employers and the easing of restrictions slowly draw staff back into work. Energy network companies have been reprimanded by the UK government and regulator for providing “inadequate support” to thousands of households left without power for more than a week after Storm Arwen last November. The criticism came as meteorological authorities warned of potentially equally dangerous conditions on Friday when extreme weather is forecast to hit south-west Britain. Meanwhile, Millions of people have been told to stay at home as one of the worst storms in decades, Storm Eunice, hits the UK. UK ministers have moved to strike “mini” trade deals with individual US states after Joe Biden, 79, suggested he had little interest in pursuing a full trade agreement between Brexit Britain and America. The Brexit-backing Trade Minister Penny Mordaunt, 48, has travelled stateside to rally up support for new deals.


Euro is well bid against most major currencies overnight. Ukrainian government forces and Russian-backed rebels in the country’s east traded fresh accusations of shelling and other ceasefire violations on Friday, escalating tensions amid fears of a Russian invasion. The European Union has welcomed more than 40 African leaders to Brussels in an effort to reassert its influence on a continent where China and Russia have made hefty investment inroads, and where many felt let down by Europe’s COVID-19 vaccines rollout. The EU will offer several packages of support at the EU-AU summit to bolster health, education, and stability in Africa, and will pledge half of a new 300 billion euros ($340.9bn) investment drive launched to rival China’s Belt and Road Initiative. Europe is slowly emerging from a brutal winter of draconian Covid restrictions as hospital pressures on the continent ease despite record infection numbers from Omicron. A French ban on nightclubs was lifted on Wednesday as well as limits on sporting events and concerts, three of the key remaining social curbs introduced in December in response to the new variant. The Netherlands has announced an extraordinary U-turn that will see it lift virtually all virus restrictions next week just a month after coming out of one of the toughest lockdowns in the world. Meanwhile, the Portuguese Council of Ministers announced Thursday that the country will scrap most of its COVID-19 restrictions.


The dollar is weaker than most major currencies in the early morning trade. St. Louis Federal Reserve President James Bullard cautioned Thursday that without central bank action on interest rates, inflation could become an even more serious problem. Bullard repeated his view that Fed should raise interest rate by 100 basis points by July 1 and start balance-sheet run-off in the second quarter, in response to the fastest inflation in 40 years. He maintains calls for strong action from the Fed against stubbornly high inflation. A congressional committee has asked federal regulators to terminate the Trump Organization’s lease for its signature Washington DC hotel, citing possible irregularities in the company’s financial reports. The request, if honoured, would also scupper the planned sale of the property for $375mn to a Miami investment group, a transaction that would bring an expected $100mn profit to the former president’s company. Meanwhile, Trump and two of his children must answer questions under oath in a New York investigation into their business practices, a judge has ruled. Idaho’s Governor, Brad Little, proudly stood before an appreciative crowd at a software company recently and signed a record $600 million tax cut into law. The cut includes $350 million in one-time rebates and $250 million in permanent income tax reductions for individuals and businesses.


Stocks rose Friday and havens such as gold and bonds dipped as planned talks between Russia and the US over Ukraine alleviated some investor gloom about geopolitical risks. Europe’s Stoxx 600 Index and US equity futures gained after Russian Foreign Minister Sergei Lavrov agreed to meet US Secretary of State Antony Blinken for talks in Europe next week, amid a flurry of diplomatic activity related to Moscow’s military build-up near Ukraine. The prospect of a meeting coaxed investors out of safer investments, sending Treasury yields up slightly and pulling bullion below $1,900 an ounce, a level it only just scaled for the first time since June. The yen fell and the dollar was little changed. Crude oil slipped as traders balanced the potential return of Iranian barrels, if the nation reaches a nuclear accord with world powers, against the risk of disruption to Russian energy supplies. Global stocks are set for a second week of losses, sapped by the standoff between Russia and the West over Ukraine as well as the prospect of tightening Federal Reserve monetary policy. Some $2.2 trillion of option expirations set to hit the market Friday may exacerbate volatility. Hermes dropped the most since 2016 after the French luxury-goods company reported a decline in leather-goods sales.

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

7:30 a.m.: France 4Q unemployment rate
8:00 a.m.: U.K. Jan. retail sales
8:00 a.m.: Sweden Jan. CPI
8:45 a.m.: France Jan. CPI
10:00 a.m.: ECB’s Vasle speaks
10:00 a.m.: Poland Jan. PPI, sold industrial output, employment
12:00 p.m.: U.K. sells bills
4:00 p.m.: Euro zone Feb. consumer confidence
4:00 p.m.: U.S. Jan. Leading Index, existing home sales
7:00 p.m.: Baker Hughes U.S. rig count
7:30 p.m.: ECB’s Panetta speaks
U.S. Monetary Policy Forum at Chicago Booth. Fed speakers include Charles Evans, Christopher Waller and Lael Brainard. ECB Board Member Fabio Panetta joins.

Corporate Events

Earnings include Hermes, Deere, Eni, Sika, NatWest, EDF, PPL, Segro, Kingspan, Renault, Air Canada


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