Morning Report – Monday 8 February

Jon Robson, Head of Trading

“After last week’s disappointing U.S. jobs report, market participants will want to see better U.S. economic data, clearer plans for the fiscal stimulus, and progress in fighting the pandemic. Without all three, the dollar remains vulnerable.”

Main Headlines

U.S. Treasury Secretary Janet Yellen said on Sunday that American workers who earn $60,000 per year should receive stimulus checks as part of the White House’s proposed $1.9 trillion coronavirus relief package. If Congress approves the $1.9 trillion plan, the country would get back to full employment next year, Yellen said.

The U.K. is on track to vaccinate all people over age 50 by May and is already planning for a program of top-up immunisations to fight new variants of coronavirus from the autumn. The NHS is planning a mass campaign of booster jabs against new variants of coronavirus, in what the vaccines minister suggested would become an annual effort to prevent Covid-19 as the virus keeps mutating.

GBP

Sterling held gains versus the dollar and the euro overnight. The bosses of supermarkets, retail property owners and other store chains are pushing Chancellor Sunak for action to ease their tax burden with a permanent reduction in business rates when the current temporary relief comes to an end in April. Meanwhile, bankers are gearing up for a face off with the Bank of England over the future of the UK’s ringfencing law, which require the separation of retail and investment banking divisions.

EUR

The euro is slightly lower against other major currencies in the early morning trade. Mario Draghi is on track to form a new Italian government after the former head of the European Central Bank won initial backing of some of the biggest parties. Draghi will start a second round of talks with parties on Monday and is expected to meet trade unions and business lobbies. European Central Bank President Christine Lagarde predicted the euro-area recovery will pick up in the summer, while stressing that public authorities will have a difficult job weaning the economy off of emergency support.

USD

The dollar was little changed against most majors this morning. Speaking from the White House alongside Treasury secretary Yellen on Friday, Biden said the “biggest risk” on fiscal policy was not if the US government went “too big” but rather “too small”, stifling the rebound. The release of U.S. consumer prices and consumer sentiment later this week will help determine whether a recent rise in inflation expectations and Treasury yields was justified.

Markets

U.S. and European contracts climbed after the S&P 500 closed at an all-time high Friday. Japan’s Topix index ended Monday at the highest since 1991 amid reports the government may lift its state of emergency early for some areas. Ten-year Treasury yields rose, while the pace of U.S. inflation implied by the bond market accelerated to the fastest since 2014. Brent crude topped $60 a barrel, gold is flat.

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

8:00 a.m.: Germany Dec. Industrial Production

9:00 a.m.: Spain Dec. Industrial Output

10:30 a.m.: Euro-Area Feb. Sentix Investor Confidence

11:30 a.m.: Germany sells bills

2:50 p.m.: France sells bills

5:00 p.m.: ECB’s Villeroy speaks, ECB’s Lagarde speaks in European Parliament

Corporate Events

Earnings include SoftBank Group

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