January 26, 2022

“With Ukraine tensions firmly being the focus and the ongoing threats of sanctions hanging over Moscow, the Russian Ruble continues to weaken against the Dollar.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Joe Biden has said he will consider personal sanctions against Vladimir Putin if Russia invades Ukraine, as western leaders step up military preparations and make plans to shield Europe from Russian gas being cut off. The rare sanctions threat came as NATO placed forces on standby and reinforced eastern Europe with more ships and fighter jets in response to Russia’s troop build-up near its border with Ukraine. Russia denies planning an attack and says the crisis is being driven by NATO and US actions. It is demanding security guarantees from the west including a promise by NATO never to admit Ukraine as a member. Moscow sees the former Soviet republic as a buffer between Russia and NATO countries. At the same time, Biden told reporters he has “no intention” of dispatching US troops to Ukraine, and spoke of severe economic consequences, depending on what Putin decided to do. The threat of sanctions on Putin came as the US helped prepare for the diversion of natural gas supplies from around the world to Europe if the flow from Russia is cut, to blunt Putin’s most powerful economic weapon.

Boris Johnson is braced for the most perilous 48 hours of his premiership for the imminent publication of an inquiry into rule-breaking Downing Street parties after he had spent the day in talks with allies and Conservative MPs plotting a fight for political survival. Exasperated Conservative MPs are now due to see an official report into Downing Street parties that has now triggered a criminal inquiry. Cressida Dick, the Metropolitan police commissioner, announced on Tuesday that her officers are investigating allegations of law-breaking at the heart of government based on evidence unearthed during an inquiry by the senior civil servant Sue Gray. Grey’s investigation could be published as soon as this afternoon. Gray’s report is due to be scrutinised by Johnson’s critics, who are weighing whether to launch an effort to oust him. Johnson has told colleagues he will fight to save his job and is expected to use the publication of the Gray report to announce a shake-up of his Downing Street operation. One Tory MP said: “It’s not so much what is in the Gray report but how he responds to it.”

GBP

Sterling is stronger against euro and weaker against the dollar this morning. Britain is not ruling out sanctions targeted at Kremlin chief Vladimir Putin in person if Russia invades Ukraine, Foreign Secretary Liz Truss said on Wednesday. British manufacturers expect to raise prices by the most since 1977 over the next three months, as they wrestle with serious labour shortages and the biggest increase in costs since 1980. The Confederation of British Industry (CBI) data look set to reinforce the Bank of England’s fears that high inflation is getting baked into businesses’ pricing plans, bolstering the chances it will hike interest rates again next week. Meanwhile, Britain’s government looks firmly on track to borrow less this tax year than forecast but surging inflation will soon curb any leeway for finance minister Rishi Sunak who is under pressure to ease a cost-of-living squeeze. England will on Thursday ditch mask mandates and COVID-19 vaccine passes introduced to slow the spread of Omicron. Prime Minister Boris Johnson has credited the success of Britain’s booster rollout and the lower severity of the variant as he aims to live with COVID-19.

EUR

Euro is weaker than most major currencies in the early morning trade. Ukraine is committed to seeking a diplomatic solution to the current tension with Russia, its ambassador to Japan, Sergiy Korsunsky, said on Wednesday, adding that he saw little chance of all-out war, although there might be smaller conflicts. European businesses and households are facing gas prices that have more than quadrupled since last year. This can be indefinitely frustrated if European leaders do not end their dependence on fossil fuels. The gas price crisis and rising geopolitical tensions between Russia and Ukraine have re-emphasized that Europe needs a safe local supply of renewable energy and reduces gas consumption. Bulgaria reported a record 12,399 coronavirus infections in a single day on Wednesday, official data showed, with most of the cases caused by the more contagious Omicron variant. Meanwhile, the Dutch government has announced that bars, restaurants, museums, theatres, and other venues are to be allowed to re-open under conditions, loosening some of the toughest COVID-19 restrictions in Europe.

USD

The dollar is well bid against most major currencies overnight. The FOMC will almost certainly signal a March rate increase after its meeting today. The question is whether Jerome Powell will indicate if a 50-bps hike is in the cards. Brent crude edged up on Wednesday as geopolitical tensions in Europe and the Middle East raised supply concerns while investors locked in profits ahead of updates from the US Federal Reserve and US oil inventory data. Oil prices hit seven-year highs last week on worries that supplies could tighten due to Ukraine-Russia tensions. New York state has seen an 86% decrease in Covid-19 cases since its January 7 peak, though deaths and hospitalizations remain elevated. Hospitalized patients who survived at least a week after being discharged were more than twice as likely to die or be admitted again within months, a study found. In the meantime, Republicans in New York reacted furiously on Tuesday after state officials told school administrators to continue enforcing a mask mandate for students and teachers despite a judge overturning it, causing confusion as some districts rushed to make masks optional.

Markets

US equity futures climbed, and Asian stocks were mixed Wednesday as traders awaited a Federal Reserve decision that could buffet markets by shaping expectations for monetary-policy tightening. Japanese shares slid, while China’s CSI 300 index gained but remained on the cusp of a technical bear market with state media calling on investors to hold their nerves amid this year’s global selloff. US contracts initially sank in Asia before turning higher. European futures were in the green. Wall Street delivered another volatile session on Tuesday. The S&P 500 erased a near-3% intraday slide but then fell again to the lowest since October, led by a drop in technology stocks. Microsoft Corp. rebounded in extended trading on reassuring forecasts after releasing earnings. The benchmark US 10-year Treasury yield was little changed ahead of the Fed, while a dollar gauge fluctuated. Crude held most of its recent rally, in part on the risk that any Russia-Ukraine conflict could disrupt supplies. Traders are now waiting to see how hawkish the Fed will move to fight high inflation.

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

8:00 a.m.: Sweden Dec. PPIs, trade balance
8:00 a.m.: Denmark Dec. retail sales
8:45 a.m.: France Jan. consumer confidence
4:30 p.m.: EIA crude oil inventory report
5:00 p.m.: Russia Dec. PPI
FOMC rate decision and Fed chair news conference
WEF releases its annual Global Competitiveness Report
Fitch Solutions webinar on The Year Ahead for Mining & Metals 2022
Switzerland Credit Suisse survey expectations

Corporate Events

Earnings include TE Connectivity, Essity, Wizz Air, Epiroc, Lonza, CIT Group, Corning, Progressive Corp, AT&T, Automatic Data Processing, Hess Corp

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