January 14, 2022

“Sterling extended its longest gain in nearly two months as the U.K economy surpassed its pre-pandemic size in November for the first time since the first lockdown”

Sam Cornford, Partner – Head of Trading

Main Headlines

Federal Reserve Governor Christopher Waller said that three interest-rate increases this year was a “good baseline” but there may be fewer or even as many as five moves, depending on inflation. US central bankers last month signalled they will raise interest rates three times this year and sped up the pace at which they are tapering their asset purchase program. Several Fed official this week said the central bank may have to raise as many as four times to get inflation under control. Patrick Harker said earlier on Thursday that he “could be convinced” that a fourth hike is needed if inflation isn’t brought to heel. Charles Evans, speaking in a separate event, echoed that view. Fed Chair Jerome Powell told lawmakers earlier this week that it will take a long expansion to pull more people back into the labour force and a too-high inflation posed a “severe threat” to a prolonged period of growth.

Boris Johnson’s staff is now accused of more rule-breaking parties inside No 10. Downing Street has failed to deny reports that two parties took place at Number 10 the night before Prince Philip’s COVID-restricted funeral, at a time when indoor mixing was banned. It is alleged that Downing Street staff drank alcohol into the early hours at two leaving events in April last year. These are reported to have been held the night before the Queen was forced to sit by herself at her husband’s funeral at St George’s Chapel in Windsor. Johnson’s leadership remains in peril, although there have been no more high-profile calls for his resignation from Conservatives and many MPs seem happy to wait until the Sue Gray report into all the party allegations, and until they have had more time to digest the public reaction to Johnson’s apology yesterday, before deciding whether to actively push for his removal.

GBP

Sterling is well bid against most major currencies overnight. Britain’s economy grew by a much stronger-than-expected 0.9% in November, finally taking it above its size just before the country went into its first COVID-19 lockdown, the Office for National Statistics said on Friday. Health officials think the Omicron infections wave has now peaked in Britain and economists say the hit to the economy is likely to be short-lived, allowing the Bank of England to continue raising interest rates. British industry has reacted with dismay after the government signalled it had little appetite to provide immediate financial support to energy intensive users struggling with soaring gas and electricity prices. Covid passes are to be abandoned this month after Sajid Javid effectively killed off the policy. The health secretary has concluded that Covid-19 certification is no longer needed as the Omicron wave eases. He told MPs that he shared their “instinctive discomfort” at the policy.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Turkish inflation is nearing a peak, and Ankara isn’t worried about the lira, according to Nureddin Nebati. “The peak in annual inflation will be seen this month,” and price increases will dip to single digits by June next year, the finance minister said. Spain’s huge tourism sector will come close to reaching its pre-pandemic size in 2022, an industry association said, although the surge in the Omicron variant and supply issues will prevent a full recovery this year. The Norwegian government will partly reverse a ban on serving alcohol in bars and restaurants, one of several policy changes as it seeks to relax COVID-19 restrictions, the prime minister said on Thursday. Whether or not Vladimir Putin moves his troops into Ukraine, he has once again confronted Europe with a most painful reality: while being too weak to defend itself, it can no longer rely on the United States to come to its rescue.

USD           

The dollar is weaker than most major currencies in the early morning trade. On Thursday night, Biden has named Sarah Bloom Raskin to be the Fed’s top banking cop, known as vice chair for supervision. He also nominated Lisa Cook and Philip Jefferson to two open seats on the Fed’s board of governors. US bank stocks are facing sky-high expectations heading into fourth-quarter earnings season as investors look for strong results to add fuel to what has been one of the hottest sectors so far this year. Senator Kyrsten Sinema rejected President Joe Biden’s plea to jettison the Senate’s filibuster rule to allow Democrats to pass a voting-rights bill, all but ensuring the bill’s failure. As of Thursday, the Supreme Court blocked President Joe Biden’s COVID-19 vaccination-or-testing mandate for large businesses, a policy the conservative justices deemed an improper imposition on the lives and health of many Americans, while endorsing a separate federal vaccine requirement for healthcare facilities.

Markets

Asian stocks declined Friday after a slew of Federal Reserve officials signalled they will combat inflation aggressively and the Nasdaq 100 fell to its lowest level since October. Equities tumbled across the region, with indexes in Japan and Korea down more than 1%. U.S. futures edged higher after American stocks tumbled Thursday, led by technology companies, which are seen as most sensitive to higher rates. Treasury yields rose, while Japan’s five-year yields climbed to their highest level since 2016. Fed Governor Lael Brainard said officials could boost rates as early as March to ensure that generation-high price pressures are brought under control. Rising rates could drive investors toward value stocks, which tend to be more cyclical and offer near-term cash flows.

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

8:00 a.m.: U.K. Nov. GDP, industrial production, trade balance
8:45 a.m.: France Dec. CPI
9:00 a.m.: Spain Dec. CPI
9:00 a.m.: Hungary Dec. CPI
9:30 a.m.: Sweden Dec. CPI
10:00 a.m.: Germany 2021 GDP
11:00 a.m.: Euro area Nov. trade balance
12:00 p.m. U.K. sells bills
1:10 p.m.: Riksbank’s Ingves speaks
2:30 p.m.: ECB’s Lagarde speaks
7:00 p.m.: Baker Hughes U.S. rig count

Corporate Events

Earnings include JPMorgan, Wells Fargo, Citi, Blackrock, First Republic, HCL Technologies, BayCurrent Consulting, SHIFT

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