January 16, 2023

“The US dollar steadied after hitting a seven-month low, as traders weigh the prospects that the Federal Reserve will slow down interest rates. Meanwhile, investors await the Bank of Japan’s policy meeting, designed to review the effects of its ultra-easy policy stance, for more clues into how much further the world’s reserve currency can weaken.”

Tim Hallinan – Trading Director

Main Headlines

The mayor of New York travelled to the Mexican border city of El Paso on Sunday and declared that “there is no room in New York” for busloads of migrants being sent to America’s most populous city. Eric Adams, a Democrat, was also critical of the administration of Democratic U.S. President Joe Biden, saying “now is the time for the national government to do its job” about the immigrant crisis at America’s southern border. Busloads of migrants have been shipped north to New York and other cities by Republican run states. That has exacerbated a housing crisis in New York and a worsening homeless crisis in the city.

Health unions in England are threatening an escalation of strike action if there is no move from the government to improve on this year’s NHS pay offer, as nurses prepare for fresh walkouts this week. The Royal College of Nursing said it would announce new strike dates for February before Wednesday, when “tens of thousands” of its members are set to strike at 55 NHS trusts across England that were not part of its previous action in December. If there was no progress in pay talks by the end of the month, February’s strikes would be more than twice as big, involving all eligible members in England, the RCN said.

GBP

Sterling is weaker than most major currencies in the early morning trade. According to Aecom, construction companies in the UK are charging the highest rates for commercial building work in more than two decades as a result of soaring labour, material and energy costs. The consultancy’s UK tender price index rose at an annual rate of 10.7 per cent in the last quarter of 2022, the fastest since 1998. Rishi Sunak’s attempt to get Brexit “done” is facing a crucial week, with key talks over resolving the row about Northern Ireland’s trading relations and a Tory revolt brewing over a proposed bonfire of EU laws.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The ECB’s battle with inflation may end within half a year as policy makers begin to reverse rate hikes as soon as July. The deposit rate will be raised to a peak of 3.25% from its current 2% in three steps. The survey shows two half-point hikes in February and March, followed by a 25-bp increase in May or June. The global elite are assembling in Davos for the first winter World Economic Forum in three years. More than 100 billionaires are set to attend, but none from heavily sanctioned Russia or Covid-hit China.

USD

The dollar is well bid against most major currencies this morning. Taiwan’s next presidential election is still a year away, but for Lai Ching-te, the vice-president and likely candidate of the ruling party, the campaign to convince the US that he is a safe pair of hands starts now. The Republican chairman of the House Oversight Committee on Sunday demanded visitor logs for President Joe Biden’s house in Wilmington, Delaware, after classified documents were found in his office and garage. Joe Biden approved an emergency declaration for Alabama on early Sunday after at least nine people died in tornadoes.

Markets

US equity-index futures slipped, European stocks wavered, and the dollar snapped a three-day losing streak as investors assessed whether a rally in risk assets may be overdone given the outlook for inflation and economic growth. The Stoxx Europe 600 index was little changed after posting its best first two weeks in a year on record as easing inflation pressures, China’s reopening and mild weather supported equities. Futures on the S&P 500 and Nasdaq 100 fell more than 0.5% after stocks on Wall Street closed at the strongest level in a month on Friday.

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

8:00 a.m.: Denmark Dec. PPI
8:00 a.m.: Norway Dec. Trade Balance
9:00 a.m.: Austria Dec. CPI
12:00 p.m.: Ireland Nov. Trade Balance
2:00 p.m.: Poland Dec. CPI Core
4:00 p.m.: BOE’s Bailey and Woods testify on financial stability
The World Economic Forum kicks off in Davos
US markets closed for Martin Luther King Jr. Day

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