Morning Report – Thursday 28th January

Jon Robson, Head of Trading

“As expected, the Federal Reserve affirmed its commitment to the current low interest rate environment and asset purchase programme. With tapering off the agenda, concerns about excessive valuations boosted safe-harbour demand for the dollar.”

Main Headlines

Federal Reserve Chair Jerome Powell made clear the U.S. central bank was nowhere near exiting massive support for the economy during the ongoing coronavirus pandemic, as officials left their benchmark interest rate unchanged near zero and flagged a moderating U.S. recovery. The central bank’s policy-making body repeated it would maintain its bond-buying program at the current pace of $120 billion per month until “substantial further progress” toward its employment and inflation goals has been made.

Store and office vacancies are surging across the U.K. as the pandemic hammers retailers and workers stay at home. The amount of empty space in the U.K.’s malls and stores is rising at the fastest pace since at least 1999, when records began. The number of brokers reporting higher office vacancy rates is the highest since the depths of the last financial crisis.

GBP

Sterling is lower against the dollar overnight. Prime Minister Boris Johnson put England on notice that the national virus lockdown will continue for at least another six weeks, with schools staying closed and new border quarantine rules coming into force. Ahead of his visit to Scotland on Thursday, Johnson stressed the backing his government has given to Scotland during the coronavirus pandemic, as he seeks to quell support for a fresh independence vote.

EUR

The euro is weaker against the dollar in the early morning trade. European Central Bank policy makers are uncomfortable that investors appear to be largely ruling out more interest-rate cuts, and have agreed to stress that such stimulus remains a viable option. The European Union failed to resolve its dispute with AstraZeneca Plc over vaccine supplies, raising the risk of additional delays to the bloc’s sluggish inoculation campaign.

USD

The dollar is stronger against most majors this morning. In addition to concerns about corporate earnings and the economic outlook, worries that hedge funds squeezed out of short positions in GameStop Corp and similar companies will take profits on other assets fuelled traders’ risk aversion. U.S. gross domestic product data is due later on Thursday to gauge the strength of the world’s largest economy as it struggles with the coronavirus pandemic.

Markets

Global stocks fell back further from last week’s record. Nasdaq 100 futures underperformed after disappointment over results from the likes of Apple Inc. and Tesla Inc. sent shares sliding after market. Stocks in Hong Kong and Australia saw the bulk of Asian losses. European contracts slid. Earlier, the S&P 500 slumped the most since October. Treasuries steadied, with 10-year yields at just over 1%. Oil and gold slipped.

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

9:00 a.m.: Spain 4Q Unemployment

10:00 a.m.: Italy Jan. Consumer Confidence

11:00 a.m.: Italy sells bonds

11:00 a.m.: Euro-Area Jan. Consumer Confidence

2:00 p.m.: Germany Jan. CPI

2:30 p.m.: U.S. Initial Jobless Claims, 4Q GDP

5:00 p.m.: Russia Dec. Unemployment, Retail Sales

6:15 p.m.: ECB’s Schnabel speaks

Norway’s wealth fund presents key 2020 data

Corporate Events

Earnings include Diageo, STMicro, EasyJet, Wizz Air, Visa, Mastercard, Comcast, McDonald’s, Altria

Future Investment Initiative in Riyadh featuring Blackstone’s Steven Schwarzman, SoftBank’s Masayoshi Son, SkyBridge Capital’s Anthony Scaramucci, Guggenheim’s Scott Minerd and former U.S. Treasury Secretary Steve Mnuchin.