Morning Report

January 24, 2022

“Substantial losses are occurring among Asia’s emerging stock markets as risk appetite has declined on fears of Fed’s next steps. South Korean shares hit a 13-month low as of this morning.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US ordered family members of its embassy staff to leave Ukraine on Sunday because of the threat of “significant military action” against the country by Russia. The state department said in a statement that all US citizens should consider departing immediately for security purposes as conditions, particularly along Ukraine’s borders, in Russia-occupied Crimea, and in Russia-controlled eastern Ukraine, are unpredictable and can deteriorate with little notice. Non-essential US government employees have the option to leave Ukraine if they wish. The warning came after weeks of mounting tension along the eastern border of Ukraine, where Russia has amassed more than 100,000 troops. Meanwhile, Russia warns of “unpredictable and grave consequences for EU security” if the US does not concede Russia’s demand to roll back NATO’s expansion.

Airlines will be forced to fly more regularly this summer to retain their take-off and landing rights at UK airports, in a sign that ministers expect a rapid recovery in air travel in the coming months. The leaders of seven of the biggest airlines serving the UK have asked the health secretary to assure travellers there will be no further “knee-jerk universal testing or hotel quarantine” in response to future Covid variants. Previously placed restrictions were eased earlier this month, but arrivals from every foreign country must take a test on the day of return or one of the two following days. Airlines call for “restriction-free international travel, at the very least for the fully vaccinated,” including an end to post-arrival tests. The aviation industry in the UK has been hit far harder in any other major European nation, with international departures last year just 29 per cent of 2019 levels.


Sterling is weaker against the dollar and euro this morning. Families across the UK are facing a squeeze at the minute amid rising inflation as the cost-of-living crisis grips the country. Boris Johnson was accused on Sunday of failing to investigate allegations of Islamophobia within his government by a former minister, deepening the civil war engulfing the Conservative party. Meanwhile, Johnson is “determined” to fight on and still does not believe that he broke any lockdown rules as he braces himself for Sue Gray’s imminent verdict on parties in Downing Street. British business activity cooled unexpectedly this month to an 11-month low, but cost pressures stayed high, according to a survey that leaves the Bank of England on track to raise interest rates next week. Britain’s education minister Nadhim Zahawi said on Monday he still supported a tax hike due to come in from April, after a media report suggested that Prime Minister Boris Johnson’s ministers would back a delay.


EUR is feeling the pressure against most major currencies overnight. Italy’s parliament will begin voting on Monday for a new head of state, with Prime Minister Mario Draghi among the most prominent candidates in a wide-open contest which will be closely monitored by financial markets. Activity in Germany’s services sector rose to a two-month high of 52.2 after shrinking in December, confounding a forecast that had pointed to a decline and pointing to a positive mood among consumers and business despite the impact of the Omicron coronavirus variant. French business growth dipped by more than forecast in January compared to December, according to initial estimates in a monthly survey, as the impact of COVID-19 and inflationary pressures weighed on activity. Meanwhile, in Brussels, tens of thousands of people protested on Sunday against COVID-19 restrictions, some clashing with police who fired water cannon and tear gas to disperse them near the European Commission’s headquarters.


The dollar is stronger than most major currencies in the early morning trade. Fears are growing that action by the US central bank to combat high inflation will trigger a fresh debt crisis, as it emerged poor-country repayments to creditors are already running at their highest level in two decades. Former Treasury Secretary Lawrence Summers says he remains concerned that policy makers are complacent about inflation, and he doubts US inflation will return to the near 2% range by the end of this year. The White House is set to hold the second meeting of its Competition Council on Monday, federal agencies said on Sunday. The US House probe of the deadly assault on the Capitol will share with federal prosecutors any evidence of potential crimes aimed at pushing phony Republican electors in states won by Democratic President Joe Biden, the committee’s chairman said on Sunday. Firefighters gained greater control of a wildfire that closed northern California’s scenic coastal highway and threatened a famous bridge, although about 500 people stayed under evacuation orders.


US equity futures advanced on Monday, stirring tentative hopes of some respite after one of the worst stretches for global shares last week since the pandemic began. Contracts on the Nasdaq 100 climbed as much as 1% and those on the S&P 500 rose 0.7%. Stocks in Europe pared an early decline, while most Asian benchmarks dropped as traders weighed the likely market impact of Federal Reserve monetary-policy tightening. The Fed on Wednesday is expected to signal a March lift-off in interest rates and balance-sheet reduction later this year to help fight inflation. Declining stimulus is forcing a rethink about the economic and market outlook. The Treasury 10-year yield dipped along with rates on most European bonds. A dollar gauge ticked slightly higher. Aside from the Fed, earnings updates from titans such as Apple Inc. will shape sentiment too in the days to come following an uneven start to the reporting season. Tech stocks have borne the brunt of an equity selloff this year, while some less richly valued parts of the market have held up better.

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

9:15 a.m.: France Markit Jan. PMIs
9:30 a.m.: Germany Market/BME Jan. PMIs
10:00 a.m.: Euro area Markit Jan. PMIs
10:00 a.m.: Poland Dec. retail sales
10:30 a.m.: U.K. Market/CIPS Jan. PMIs
Argus Americas Crude Summit in Houston
EU foreign ministers meet in Brussels

Corporate Events

Earnings include Philips, Halliburton, IBM, Steel Dynamics


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