January 25, 2023

“Strong business activity data is easing the concerns of a European recession – the flash PMI readings in the Eurozone printed better than expected yesterday, with the composite index rising above 50. However, European markets opened fractionally lower this morning. Meanwhile, the dollar struggles to regain ground amid growing expectations of a less aggressive policy tightening by the Fed.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US Department of Justice is suing Google for allegedly exercising monopolistic control of the digital advertising market, in the latest legal broadside against the group as Washington seeks to crack down on the dominance of Big Tech. A complaint filed by the DoJ and a group of US states in a Virginia federal court accuses Google of using “anti-competitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies.” The highly anticipated lawsuit comes as Joe Biden’s administration has focused on stamping out anti-competitive conduct in the US economy.

The UK’s state-owned infrastructure investment bank has been accused of “reinventing the wheel” by funding projects that already draw private capital, according to an influential group of cross-party MPs. The House of Commons public accounts committee said on Tuesday that it was “not convinced” the UK National Infrastructure Bank had a “strategic view of where it best needs to target its investments”. The UKIB was set up 18 months ago to invest private sector finance into projects that help meet the government’s net-zero climate targets and levelling-up commitment to tackle regional inequality.

GBP

Sterling is weaker than most major currencies in the early morning trade. Rishi Sunak will face renewed calls to sack Conservative party chair Nadhim Zahawi, as Labour challenges the UK prime minister on why he did not find out sooner the details of his minister’s £5mn tax dispute. The High Court in London has overturned a government decision to block a £1.4bn undersea electricity cable to France planned by an energy group backed by two tycoons born in Russia and Ukraine. Chancellor Jeremy Hunt is looking to tackle the “begging bowl” relationship between England’s regions and the Treasury by giving local mayors more powers over their own finances.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. NATO Secretary General Jens Stoltenberg expects the alliance’s member states to raise their current spending target on defence of 2% of national output when they meet for a summit in Vilnius in July. Bulgarian President Rumen Radev said he would set April 2 as the date for the country’s fifth parliamentary election within two years after inconclusive October polls failed to produce a working government. All flights were cancelled at Germany’s BER airport in the capital Berlin today, as staff went on strike for the day to press pay demands.

USD

The dollar is well bid against most major currencies this morning. According to ISS Market Intelligence, index funds will control more than half of long-term invested US assets by the end of 2027. Active fund’s share of the US market will fall from 53 per cent in 2022 to 44 per cent in five years, the research group estimates. The US and Germany are planning to send advanced tanks to Ukraine, in a move that marks a significant breakthrough in western efforts to bolster Kyiv’s fight against the Russian army. 3M announced plans to cut 2,500 jobs worldwide as the industrial conglomerate warned that a slowdown in demand during its fourth quarter was expected to extend through the first half of this year.

Markets

US stocks ended the day just off session lows after weak economic data rekindled concern over the outlook for growth and corporate earnings. Treasuries rallied, while the dollar rebounded on deteriorating risk sentiment. The S&P 500 fell 1.6%, the worst decline in a month, while the tech-heavy Nasdaq 100 snapped a seven-day rally, after reversing gains of more than 1%. Earlier, stocks rallied as Treasury yields fell across the curve on bets weak data would prompt the Federal Reserve to downshift its tightening policy. Two Fed officials, however, repeated calls for more hikes even after further signs the economy was softening and inflation cooling.

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

10:00 a.m.: Poland Dec. Unemployment
10:00 a.m.: Germany Jan. IFO Business Climate, Expectations
11:00 a.m.: Norway sells bonds
11:30 a.m.: Germany sells bonds
1:00 p.m.: US MBA Mortgage Applications
1:00 p.m.: Riksbank Climate Report
4:30 p.m.: US crude oil inventories

Corporate Events

Earnings include Tesla, Boeing, AT&T, ADP, Abbott, Kimberly-Clark, CSX, NextEra Energy, ASML, Givaudan, Lonza, Netcompany, IBM, Las Vegas Sands

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