Morning Report

January 11, 2022

“Labour markets are to stand strong even while the economy struggles with the omicron variant. Inflation is likely to continue to rise, peaking in April as the UK’s energy regulator Ofgem lifts its price cap.”

Tim Hallinan, Trading Director

Main Headlines

Federal Reserve Chair Jerome Powell said the central bank will prevent higher inflation from becoming entrenched while cautioning that the post-pandemic economy might look different than the previous expansion. In response to the hottest inflation in a generation, US central banks are hurrying to end pandemic policy support while signalling they will raise interest rates sooner than expected. All officials in December indicated they backed raising rates from near zero this year, with a median estimate showing three hikes, compared with nine of eighteen officials in September who sought no increase at all in 2022. Policy makers forecast strong labour markets even while the economy struggles with the omicron variant, which could prolong the pandemic’s disruption to the supply of goods, services, and workers.

Researchers specializing in the link between the epidemic and Boris Johnson’s economic data say Boris Johnson’s decision to eliminate the Omicron wave of Covid-19 infections with minimal restrictions could become the right call for the UK economy. They have accused ministers of setting policy based on political clarity, not strategy. But they believe Omicron is likely to cause only a small shock to the economy in December and January. With Omicron’s health impact proving to be less severe than feared in a heavily vaccinated society, economists now believe they will be able to look back at the latest variant as nothing more than a blip. Economists have little doubt that when the official figures for December and January are released, they will show contract output levels as consumers taper off before Christmas and into the new year, spending less in shops, pubs, and restaurants.


Sterling is stronger against the dollar and weaker against the euro this morning. Boris Johnson has piled pressure on his scientific advisers to cut the recommended Covid isolation period to five days as health chiefs admitted they had misread guidance from the United States when they opposed a change. The UK Health Security Agency has acknowledged it was wrong to claim that the US five-day isolation period started “some days” later than the British seven-day rule. KPMG’s chief executive has admitted that the accounting firm misled the industry watchdog over its audit of Carillion, the collapsed outsourcer. High street retailers and supermarkets enjoyed some festive cheer after months of Covid disruptions as sales in the run-up to Christmas beat pre-pandemic levels. Retail sales in December rose by 2.1 per cent compared with the previous year and were 4.6 per cent higher than in 2019, before the start of the pandemic, according to figures from the latest BRC-KPMG retail sales monitor.


The euro is well bid against most major currencies overnight. Russia rebuffed American entreaties to pull back tens of thousands of troops massed on the Ukrainian border yesterday, insisting it had no plans to invade while warning that the risk of confrontation over NATO’s expansion should not be overestimated. The warning came after eight hours of talks between senior American and Russian diplomats in Geneva, where neither side appear to yield ground, but both agreed to continue the dialogue. A French MP has been attacked by a crowd of Covid-19 pass protesters outside his home in the overseas territory of St Pierre and Miquelon. The Czech Republic said on Monday it would allow critical workers such as doctors and teachers to go to work after a positive COVID-19 test, the latest European country to ease restrictions to keep services running as cases surge.


The dollar is weaker than most major currencies in the early morning trade. The United States reported 1.35 million new coronavirus infections on Monday, according to a Reuters tally, the highest daily total for any country in the world as the spread of the highly contagious Omicron variant showed no signs of slowing. Eighteen Democratic lawmakers are urging U.S. Treasury Secretary Janet Yellen to back a review aimed at ending the International Monetary Fund’s policy of charging countries significant surcharges on larger loans that are not repaid quickly. US school closures reached a record high for the academic year last week as omicron-fuelled coronavirus cases caused staff shortages and disrupted classes, but the shutdowns are about to ease as more schools are set to reopen in-person.


Asian stocks and US futures fluctuated Tuesday ahead of a key American inflation reading that’s expected to strengthen the case for tighter monetary policy. Shares slipped in Japan and Hong Kong, as well as in China, where the omicron virus strain is spreading. S&P 500 contracts swung between gains and losses after the benchmark posted its longest losing streak since September, though dip buyers emerged late in the session to wipe out almost all intraday losses. European futures climbed. EUROSTOXX 50 futures rose 0.6% and FTSE futures gained 0.3%, indicating a firm open for European stock markets. Global markets have been on the edge for inflation risks but Hou Wey Fook, chief investment officer at DBS Bank, said he did not think inflation was in a “runaway situation.”

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

8:00 a.m.: Turkey Nov. current account balance
10:00 a.m.: Italy Nov. retail sales
10:30 a.m.: Spain sells bills
11:00 a.m.: U.K. sells bonds
2:00 p.m.: ECB’s Kazaks speaks
EIA releases Short-Term Energy Outlook

Corporate Events

Earnings include Yaskawa Electric, Cosmos Pharma, Aeon Mall, Kewpie, Qatar National Bank, Albertsons, TD Synnex, Games Workshop, About You


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