January 24, 2023

“The greenback hovered near a nine-month low to the euro and gave back some of its recent gains against the yen, as traders weigh the risks of a US recession ahead of the release of more PMI data later today. Meanwhile, the ECB President reiterated that intertest rates ought to be hiked significantly at a steady pace to slow inflation, suggesting that there may be another 50bps increase.”

Tim Hallinan – Trading Director

Main Headlines

Republican-leaning states are attracting most of the clean-energy investments spurred by the Biden administration’s signature Inflation Reduction Act, a bill that passed the US Congress without any Republican votes. The act, which was signed into law in mid-August, offers beefy tax credits and other support for clean-energy projects ranging from wind farms to factories that make batteries, solar components, or hydrogen. The incentives have improved the economics of those projects and helped spark a flood of investment announcements from companies including the solar manufacturing unit Hanwha Group and start-up Freyr Battery.

The UK is to propose a carbon border tax that would place a levy on imported steel as part of a £600mn support package to help Britain’s two biggest steelmakers invest in greener technologies and avert the loss of thousands of jobs. Jeremy Hunt agreed to consult on ways to level the playing field for British Steel and Tata Steel UK against competitors based in regions with lower environmental standards or lower operating costs. One option will be the introduction of a carbon border adjustment mechanism that will force importers to cover the cost of the carbon emissions of the foreign steel.

GBP

Sterling is well bid against most major currencies this morning. Britain’s government borrowed more last month than in any December since monthly records began 30 years ago, reflecting the huge cost of energy support, soaring debt interest linked to rising inflation. The Office for National Statistics said public sector net borrowing, excluding state-owned banks, was 27.4 billion pounds in December, up from 10.7 billion pounds a year earlier. UK’s FTSE 100 slipped today, as losses in pharmaceutical companies’ stocks weighed on the index, while investors awaited British business activity data that would offer clues on the state of the economy.

EUR

Euro is weaker than most major currencies in the early morning trade. A European recession looked like a no-brainer just a few weeks ago, but that picture has changed dramatically, and investors have started pouring money into the region’s stocks, currency, and bonds. Warmer temperatures and well-filled gas storage facilities mean there’s less concern about power shortages and sky-high energy bills. That, along with China reopening its economy at breakneck speed, promises a boost for Europe’s export-oriented economy. German consumer sentiment is set to improve for a fourth consecutive month in February as energy prices fall.

USD

The dollar is stronger against euro and weaker against sterling this morning. The US State Department said Finland and Sweden are ready to join the NATO alliance, after Turkish President Tayyip Erdogan said Sweden should not expect Turkey’s support for its membership after a protest near the Turkish embassy in Stockholm at the weekend including the burning of a copy of the Koran. US farm and trade officials raised “grave concerns” over Mexico’s agricultural biotechnology policies in meetings with their Mexican counterparts, as lingering disagreements threaten decades of booming corn trade between the neighbours.

Markets

European equity futures and Asian shares and climbed this morning in the wake of tech-stock fuelled gains on Wall Street and bets for less-aggressive interest rate hikes from the Federal Reserve. The dollar ticker lower and Treasuries held recent declines, reflecting wanning demand for haven assets. Australian and New Zealand bonds fell, as did Japan’s benchmark 10-year debt. Euro Stoxx 50 contracts advanced 0.3%, Australian stocks advanced 0.4% and Japan’s Topix index rallied 1.4%. Many other markets in Asia remained closed for Lunar New Year celebrations.

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

7:00 a.m.: Swedbank Economic Outlook
8:00 a.m.: Germany Feb. GfK Consumer Confidence
8:00 a.m.: UK Dec. Public Sector Net Borrowing
8:45 a.m.: France Jan. Business, Manufacturing Confidence
9:10 a.m.: ECB’s Knot Speaks
9:15 a.m.: France Jan. S&P Global Services and Manufacturing PMIs
9:30 a.m.: Germany Jan. PMIs
10:00 a.m.: Euro-Area Jan. PMIs
10:00 a.m.: ECB’s Vujcic Speaks
10:30 a.m.: UK Jan. PMIs
10:45 a.m.: ECB’s Lagarde speaks
2:00 p.m.: Hungary Rate Decision
3:45 p.m.: US Jan. PMIs
5:30 p.m.: SNB’s Schlegel speaks

Corporate Events

Earnings include Microsoft, 3M, Raytheon, GE, Danaher, Halliburton, Lockheed Martin, J&J, Verizon, AB Foods

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