January 19, 2022

“The cost-of-living soars to 30-year high, surpassing all economists’ estimates. Inflation running ahead of forecasts coupled with another big surge in payrolls in December will likely lead to the Bank of England raising interest rates in February.”

Tim Hallinan – Trading Director

Main Headlines

Investors on Tuesday cranked up their bets on monetary tightening from the Federal Reserve, reigniting a sell-off in Treasuries and pushing US stocks to multi-month lows. Treasury yields jumped to a two-year high as traders returned from the long weekend in the US, with markets for the first time fully pricing in four interest rate increases from the US central bank this year. The benchmark S&P index fell to its lowest level since December, while the tech-heavy Nasdaq hit its lowest point since October. The yield on the 10-year US Treasury notes, which rises as the price of the global government debt benchmark falls, climbed 0.09 percentage points to 1.87 per cent as the prospects of higher rates on cash deposits and sustained inflation made the security’s fixed-interest payments less appealing. Focus is now sharpening on the Fed’s March meeting, with markets starting to consider pricing more than a 25-basis-point increase. That comes after the likes of JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and Bill Ackman warned that central banks may need to lift borrowing costs more than investors expect.

Boris Johnson is due to embark on a fight for political survival, as Tory MPs claimed they were on the verge of triggering a no-confidence vote in the prime minister over alleged lockdown parties in Downing Street. Johnson will attempt to contain the rebellion by announcing a lifting of Covid-19 restrictions in England, but one ally said there was a “50-50 chance” he could soon face a confidence vote. The prime minister is currently confronting a new threat from Conservative MPs elected in 2019, who met on Tuesday to discuss the prime minister’s future following the lockdown party allegations. As he fought for his political life, the PM told MPs last week that he believed a “bring-your-own-booze” party on May 20, 2020, in the garden of No10 when Britain was in lockdown was a “work event”. Nevertheless, nearly three quarters of Londoners believe his assertion that he thought it was a work event is “not an honest account”. Johnson maintains that he wasn’t told it was against the rules for him to attend a gathering in the garden of No 10 during lockdown but did not rule out resigning as he faced a mounting revolt from Tory backbenchers.

GBP

Sterling is weaker than most major currencies in the early morning trade. Inflation in the UK rose to 5.4 percent in December from 5.1 percent in November, well above the Bank of England’s target of 2 percent. Responding to the rise in inflation, Chancellor Rishi Sunak says he understands the pressure people are facing with the increased cost of living support, and people’s concerns will not be overlooked. British Prime Minister Boris Johnson is set to end most COVID-19 measures introduced to curb the rapid spread of the Omicron variant in England as he looks to live with the virus and fully reopen the economy after an apparent peak in cases. Johnson is expected to announce an easing of England’s Covid rules when he makes a statement on Plan B later today. Britain’s Emissions Trading System Authority has again decided it will not intervene in the country’s carbon market, even though prices were high enough to trigger a so-called cost containment mechanism in January. A Labour council-backed energy firm has gone bust after receiving tens of millions of pounds in tax-payer funding – leaving 176,000 homeowners without an energy supplier.

EUR

Euro is weaker against most major currencies overnight. US Secretary of State Antony Blinken arrived in Ukraine on Wednesday amid mounting fears that a Russian invasion of Ukraine could be imminent. An estimated 127,000 Russian troops have been deployed near Ukraine’s borders and White House Press Secretary Jen Psaki told reporters on Tuesday the build-up had created an “extremely dangerous situation.” Silvio Berlusconi’s campaign to become Italian president is making little progress and he would be wise to withdraw his candidacy, the right-hand man of the former prime minister. Germany’s new daily cases surpassed 100,000 for the first time and Infections in France also hit a record of more than 450,000. Bulgaria reported a record 11,181 coronavirus infections in a single day on Wednesday, official data showed, dominated by the more contagious Omicron variant. The WHO has recently reported that Omicron will not be the last variant, and comprehensive strategies are still needed to reduce severe disease, deaths, and transmission.

USD

The dollar is stronger against sterling and euro this morning. Texas election officials have rejected hundreds of mail-in ballot applications, abiding by a new Republican-backed law just weeks before a March 1 primary kicks off this year’s US election cycle. The congressional committee probing the Jan. 6, 2021, attack on the US Capitol issued subpoenas on Tuesday to three lawyers who joined former President Donald Trump’s unsuccessful attempt to overturn his election defeat: Rudy Giuliani, Sidney Powell and Jenna Ellis. The House of Representatives committee demanded the pro-Trump lawyers’ hand over documents and sit for depositions on February 8. The Biden administration on Tuesday unveiled a 10-year plan to treat and maintain millions of additional acres of forests in the western United States to reduce the severity of seasonal wildfires.  The US Postal Service opened a website to order free at-home tests. American households can order up to four free COVID-19 tests amid the Omicron variant surge.

Markets

Stocks pared a global selloff Wednesday in the wake of a surge in Treasury yields, as the prospect of Federal Reserve monetary tightening to fight high inflation weighs on markets. European stocks closed lower on Thursday as global markets faltered following the latest U.S. inflation reading showing consumer prices rose once again in December. The pan-European Stoxx 600 hovered around the flatline during afternoon deals but closed lower by 0.2%. Household goods dropped 1.2% while autos gained 1.6%. Asian stocks and US futures slid after the S&P 500 suffered a broad drop and the tech-heavy Nasdaq 100 sank. A dollar gauge edged lower. Oil pared its rally as Turkey reopened a key crude pipeline running from Iraq after it was knocked out by an explosion on Tuesday. Elevated energy costs are underscoring global price pressures. Big US banks will spend more on salaries and benefits this year, as inflationary pressures, pandemic risks and the tight labour market force them to raise wages to get and keep workers.

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

8:00 a.m.: U.K. Dec. CPI
8:00 a.m.: Germany Dec. CPI
10:15 a.m.: Denmark sells bonds
10:30 a.m.: U.K. Nov. house price index
11:00 a.m.: Euro area Nov. construction output
11:00 a.m.: Sweden sells bills
11:30 a.m.: Germany sells bonds
11:30 a.m.: Portugal sells bills
12:00 p.m.: Ireland Dec. CPI
12:00 p.m.: EU sells bills
3:15 p.m.: BOE officials testify on financial stability
IEA monthly report

Corporate Events

Earnings include BofA, Morgan Stanley, UnitedHealth, ASML, Prologis, P&G, Kinder Morgan, JSW Energy, Larsen & Toubro, Infotech, Bajaj Auto
Bloomberg Climate Resilience online event, with CEOs of AB InBev and Deloitte Global

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.