February 2, 2022

“Sterling is nearing the strongest level against the Euro since Britain voted to leave the EU in 2016, as the Bank of England maintains is hawkish stance and looks poised to tighten monetary policy again this week.”

Tim Hallinan – Trading Director

Main Headlines

Demand for workers and employee turnover in the US remained at historically high levels at the end of 2021, a sign of the tightness in the labour market that has weighed on the economic recovery. A total of 4.33mn Americans quit their jobs in December, a historically elevated level, although slightly below November’s record of 4.5mn, according to data released on Tuesday by the US labour department. The rate in which employees are quitting came in at 2.9 per cent, its highest year-end reading on record. That was a slight decrease from the record levels of 3 per cent in September and November. During the pandemic American businesses have for months been contending with worker shortages, brought about by factors such as skills mismatches, childcare responsibilities, or public health guidelines. High labour demand has been one factor helping push up wages for workers, but the persistent vacancies have also posed concerns to employers still recovering from the pandemic. Some workers have capitalised on the resulting war for talent by quitting old jobs in search of better or higher-paying roles. Rising labour costs have also contributed to a broader rise in inflation and are among the reasons why the Federal Reserve has decided to wind down its stimulus programme more quickly.

Boris Johnson remained in deep trouble over the “party gate” affair on Tuesday as new revelations emerged of his attendance at lockdown parties and once-loyal Conservative MPs said he should quit. Many Tory MPs said the prime minister was on a three-month probation until local elections in May, but a constant drip of new revelations threatens to further undermine his position in the days ahead. Boris Johnson is currently under renewed pressure over lockdown parties in Downing Street, amid reports he attended more gatherings under investigation by the police. It has been reported that he was seen heading up to his flat on the night of a gathering there which the Met is investigating.  The prime minister previously promised the Tory MPs at a private meeting that there would be “no new revelations.” The new reports are likely to fuel claims by opposition parties that Mr Johnson was aware of the so-called “party culture” in Downing Street and parts of Whitehall at that time. In her “update” on Monday, Sue Gray, the senior official who has been investigating the allegations, disclosed there were 12 events between 2020 and 2021 that are currently being investigated by the police. She was unable to publish her full findings because of the police inquiries.

GBP

Sterling stands strong against most major currencies overnight. Russian President Vladimir Putin is holding a gun to Ukraine’s head to force a change to the architecture of European security, British Prime Minister Boris Johnson said on Tuesday, stressing he was not exaggerating Russia’s threat. Britain’s government will set out its plan to “level up” the country on Wednesday as it tries to move on from the scandal of lockdown parties in Downing Street by turning to one of the big policy pledges that put Boris Johnson there in 2019. British shoppers were hit by the biggest increase in prices charged by major retailers in more than nine years in January, according to a survey that added to signs of accelerating inflation momentum. The British Retail Consortium said on Wednesday, a day before the Bank of England is expected to raise interest rates for a second time in two months, that shop prices rose by 1.5% in January compared with the same month in 2021. New UK national security legislation is threatening damaging delays to angel investment in start-ups, with even state agency Scottish Enterprise potentially forced to go through an official approval process before taking stakes in a wide range of ventures. The UK has been reported to have wasted almost £10bn on defective, unsuitable, and overpriced personal protective equipment as ministers rushed to meet unprecedented demand at the height of the coronavirus pandemic.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Russia’s President Vladimir Putin has accused the US of trying to draw his country into a war in Ukraine. He said America’s goal was to use a confrontation as a pretext to impose more sanctions on Russia. Mr Putin also said the US was ignoring Russia’s concerns about NATO alliance forces in Europe. Britain, Poland, and Ukraine are working to strengthen their three-way cooperation in the face of the threat of a new Russian military intervention, the leaders of the two eastern European countries said in Kyiv yesterday. Investors are betting that persistently high inflation will force the European Central Bank to raise interest rates more than once this year, in a challenge to the central bank’s insistence that it expects to freeze rates at historical lows at least until next year. Norway’s Prime Minister, Jonas Gahr Stoere, announces intentions to scrap most of its remaining COVID-19 lockdown measures with immediate effect as a spike in coronavirus infections is unlikely to jeopardise health services. The announcement follows similar decisions by neighbouring Denmark and other European countries, which have eased or removed restrictions in recent weeks.

USD

The dollar is weakening against most major currencies in the early morning trade. Republican US lawmakers donated more than $380,000 last year to the campaigns of eight colleagues who Donald Trump is trying to drive from office, prioritizing the goal of regaining control of Congress over the former president’s desire for vengeance. At least 71 Republican members of the House of Representatives and Senate transferred money to the campaigns of seven House Republicans who voted to impeach Trump on a charge of incitement of insurrection arising from last year’s Capitol riot. Republicans are trying to take over one or both chambers in the Nov. 8 congressional elections. If they do so, they could destroy Biden’s legislative agenda. A major winter storm is expected to wallop much of the central United States and stretch to parts of the Northeast this week, bringing heaving snow, freezing rain, and ice, the National Weather Service reported. The approaching blast of frigid weather, which was expected to begin arriving Tuesday night, put a long stretch of states from New Mexico to Vermont under winter storm warnings and watches. More than a foot of snow was possible in Michigan. Meanwhile, hundreds of flights have been cancelled.

Markets

Asian stocks rose Wednesday amid a recovery in US shares spurred by the corporate earnings outlook and signs that Federal Reserve officials favour measured monetary-policy tightening. Equities advanced in Japan and Australia, among the few markets open in Asia due to the Lunar New Year holiday. US Treasuries were little changed, and a dollar gauge held a retreat. European and US equity futures pushed higher, with contracts on the technology-heavy Nasdaq 100 up over 1% after strong earnings from Alphabet Inc. and Advanced Micro Devices Inc. US stocks on Tuesday posted their best three-day rally since 2020. Oil has been reported to have steadied near a seven-year high ahead of a meeting of OPEC and its allies on boosting output. Gold fell below US$1,800 an ounce. Bitcoin traded around the highest level in two weeks. The latest Fed commentary hinted at a calibrated approach to raising interest rates to fight high inflation, potentially soothing some investor worries that the economy will take a hit from tighter monetary policy. Those concerns have whipsawed markets this year, leaving global stocks in the red. The latest US data on manufacturing and job openings showed a resilient economy that the Fed is trying to cool. Traders are continuing to monitor tension between the US and Russia over Ukraine. Officials say Russia has amassed more than 100,000 troops near the Ukraine border. Diplomatic talks showed little sign of a breakthrough.

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

9:00 a.m.: Spain Jan. unemployment change
11:00 a.m.: Euro area Jan. CPI
11:00 a.m.: Italy Jan. CPI EU harmonized
12:00 p.m.: Ireland Jan. unemployment rate
4:30 p.m.: EIA U.S. oil inventory report
5:00 p.m.: Russia Dec. industrial production
OPEC+ meets virtually to decide production policy

Corporate Events

Earnings today include Meta, Alibaba, AbbVie, Thermo Fisher Scientific, Qualcomm, T-Mobile, Mitsubishi, Boston Scientific, Denso, MetLife, Hitachi, Spotify, Ferrari, Capri, Julius Baer, Orsted, Kone OYJ, Raiffeisen Bank International, Telenor

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