January 21, 2022

“Soaring energy prices, rising inflation and additional tax increases are expected to significantly hit Briton’s cost-of-living by April. Meanwhile, UK consumer confidence hits its lowest.”

Tim Hallinan – Trading Director

Main Headlines

The Federal Reserve has for the first time launched a period of debate and public comment on the introduction of a central bank digital currency. On Thursday, the Fed released a lengthy discussion paper that will serve as basis of what is expected to be a heated debate at the heart of the central bank in the coming month. Powell says that the Fed will be engaging with the public, elected representatives, and a range of stakeholders while examining the positives and negatives of central bank digital currency in the US. The Fed had been hesitant to embrace a central bank digital currency in recent years, saying it would only do so if the benefits outweighed the costs. Last year, China began testing its own central bank digital currency, which aims to be cheaper and faster than other forms of payment, raising concerns that the US should consider similar moves to remain the supremacy of the dollar.

British retail sales contracted by far more than expected in December as surging Covid-19 infections and new restrictions hit consumer spending on fuel, clothing, and sports equipment. Consumer confidence fell significantly in January as Britons braced themselves for surging inflation, rising fuel bills and the prospect of interest rate rises. The volume of monthly retail sales in Great Britain fell 3.7 per cent between November and December, according to data from the Office for National Statistics. Petrol sales fell 4.7 per cent as many people worked from home and needed to self-isolate or avoided travelling following a surge in infections. Food store sales dropped 1 per cent. Confidence in consumers’ personal financial situation for the coming year fell three points to minus two, four points lower than this time last year, suggesting that people are ready to tighten their belts.

GBP

Sterling is weaker against the dollar and euro this morning. Families were today warned their energy bills could increase yet again in October after a predicted 50 per cent surge in April as the cost-of-living crisis continues to hit millions of British households. The Government has failed pensioners and will leave thousands of married women out of pocket, despite its attempts to correct its own mistakes. Boris Johnson’s team has been accused by a senior Conservative MP of seeking to “blackmail” rebel Tories intent on ousting the prime minister, fuelling a toxic atmosphere in the party. Boris Johnson confirmed on Wednesday that most measures under Plan B will end on 26 January, while work from home guidance has already been dropped. Meanwhile, scientists and healthcare leaders have warned that workers returning to the office and the end of mandatory mask-wearing in England risked prompting a second surge in the Omicron coronavirus variant.

EUR

The euro is well bid against most major currencies overnight. Russia raises pressure by sending more troops to Ukraine border. Meanwhile, last-minute security meetings are taking place to convince Russia to refrain from invading Ukraine: US secretary of state Antony Blinken will meet his Russian counterpart in Geneva today after having travelled to Ukraine and Berlin, where he held a so-called quad meeting with the UK, France and Germany. Warsaw restaurateur Marcin Wojtasik says he is willing to face bad reviews from anti-vaxxers to help protect his staff from COVID-19 by admitting only vaccinated customers. Austria’s vaccine mandate for adults passed easily with only far-right politicians protesting. France will relax some restrictions from next month. Meanwhile, Germany reported another record high in daily infection rates. Denmark reported a record high of 38,759 new Covid infections, a 37% jump on the 28,283 cases detected on Wednesday two weeks ago.

USD

The dollar is weaker than most major currencies in the early morning trade. President Joe Biden will urge US mayors on Friday to use more of their state and local COVID-19 aid funds to expand their workforces, a White House official said, an effort partly aimed at easing economic bottlenecks and inflation. Days after US President Joe Biden took office in January 2021, two of his top immigration advisors outlined bold plans, including a major immigration reform bill, a 100-day deportation moratorium, and a strategy to restore protections for asylum seekers that were degraded under former President Donald Trump. The prosecutor for Georgia’s biggest county on Thursday requested a special grand jury with subpoena power to aid her investigation into then-President Donald Trump’s efforts to influence the US state’s 2020 election results. The Biden administration is monitoring data from firms operating in China to determine if omicron outbreaks threaten US supply chains.

Markets

European stocks followed US equity futures and Asian stocks lower as shaky company earnings and the prospect of higher US borrowing costs unnerved investors. Bond yields fell a second day. The Stoxx Europe 600 Index fell to the lowest level in a month weighed by miners, travel and leisure and automakers. Nasdaq 100 contracts underperformed those for the S&P 500 after the tech-heavy gauge entered a correction Thursday. Investors are grappling with the prospect of reduced stimulus in the Fed’s effort to quell high inflation. Company developments also soured the mood, with Netflix Inc. plunging on a disappointing subscriber outlook. A report that Washington is allowing some Baltic states to send US-made weapons to Ukraine stoked concerns about a standoff with Russia. Receding pandemic-era stimulus is whipsawing a range of assets. Markets face a one-two punch of Fed rate hikes and the possible reduction of its $8.8 trillion balance sheet to fight price pressures.

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

8:00 a.m.: Denmark Jan. consumer confidence
8:00 a.m.: U.K. Dec. retail sales
10:00 a.m.: Poland Dec. PPI, sold industrial output, average gross wages, employment
12:00 p.m.: Ireland Dec. PPI
12:00 p.m.: U.K. to sell bills
1:30 p.m.: Lagarde on WEF global economic outlook virtual panel
2:00 p.m.: BOE’s Mann speaks
3:00 p.m.: Bank of Italy releases quarterly economic bulletin
4:00 p.m.: Euro area Jan. consumer confidence
7:00 p.m.: Baker Hughes U.S. rig count report

Corporate Events

Earnings include Investor AB, IHS Markit, Topdanmark, Huntington Bancshares, Schlumberger, Ally Financial

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