Morning Report – Friday 5 February

Jon Robson, Head of Trading

“Confidence in the U.S. economic recovery continues to provide temporary support to the greenback, although Europe and Asia are catching up with immunisations and the Federal Reserve’s continued ultra-easy monetary policy capped a rise in long-term U.S. yields. The pound is the second-best performer behind the dollar this year, and the Bank of England’s reluctance to introduce negative rates gives further support to sterling.”

Main Headlines

New US jobless claims dropped to their lowest level since November but held above 700,000, signifying the pandemic’s lingering impact on the labour market. The recent easing in weekly jobless claims—a proxy for layoffs—pointed to a stabilisation in the number of workers applying for benefits, though the total remained at a higher weekly level than before a winter surge in coronavirus cases.

The Bank of England expects a rapid vaccine-fuelled recovery for the UK economy in the second half of this year. Alongside its quarterly forecasts on Thursday, the central bank also said commercial banks should prepare for negative rates to be imposed in six months as a contingency. It stressed that this was not a sign that the bank’s Monetary Policy Committee thought such a move was necessary.

GBP

Sterling is higher against most majors this morning. U.K. ministers are poised to invite hotel chains to bid for a role in the new mandatory coronavirus quarantine for arrivals from “red list” countries as pressure grows on the UK government to get the system up and running. Health secretary Matt Hancock, transport secretary Grant Shapps and Cabinet Office minister Michael Gove met with other ministers Thursday evening to sign off on the enforced isolation policy, which will begin on February 15.

EUR

The euro is weaker against other major currencies in the early morning trade. The French prime minister said on Thursday that while it isn’t possible to ease Covid-19 restrictions yet, the government doesn’t need to impose a fresh lockdown at the moment. German factory orders fell for the first time in eight months. Demand dropped 1.9%, damped by investment goods and orders from the euro area. Orders were still up more than 6% from the previous year.

USD

The dollar stabilised after gaining against most majors overnight. A series of non-binding amendments was proposed in the Senate as part of the process to allow Democrats to pass the proposed $1.9 trillion pandemic-relief package without Republican support. Between the two parties, more than 550 amendments were filed. The so-called vote-a-rama must be finished before the Senate can then pass a budget resolution for the 2021 fiscal year – something lawmakers anticipate Friday.

Markets

Stocks climbed Friday with U.S. and European futures, following Wall Street higher on signs of a healing labour market and improving coronavirus trends. Treasuries were steady after a widely watched segment of the yield curve steepened to levels last seen in 2015. Japan and South Korea were among markets leading Asian gains. S&P 500 futures ticked higher after the benchmark closed up more than 1% at a record, led by banks and tech shares, while the Russell 2000 Index of smaller companies climbed 2%. Earnings remained in focus with EBay Inc. and PayPal Holdings Inc. surging on upbeat forecasts. Crude oil advanced and gold steadied after Thursday’s decline.

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

8:45 a.m.: France Dec. Trade

10:00 a.m.: Italy Dec. Retail Sales

12:00 p.m.: U.K. sells bills

2:30 p.m.: BOE’s Bailey, ECB’s Guindos speak

2:30 p.m.: U.S. Jan Jobs Report

5:00 p.m.: Russia Jan. CPI

7:00 p.m.: Baker Hughes U.S. Rig Count

Russia sovereign debt rated by Fitch, ESM rated by S&P

Corporate Events

Earnings include Intesa Sanpaolo, Linde, Vinci, Neste