Morning Report – Thursday 4 February

Jon Robson, Head of Trading

“The Bank of England will leave monetary policy on hold later today. Market participants are awaiting the findings from the study on negative interest rates and their feasibility, as well as any signs of economic optimism from the Central Bank’s policy meeting. The dollar faces another test on Friday, when non-farm payrolls data will reveal whether the U.S. economy moved on from its December dip in growth.”

Main Headlines

Joe Biden and congressional Democrats are pushing ahead with plans to pass a $1.9tn economic relief plan without significant support from Republican lawmakers, threatening to ditch the bipartisanship pledged by the new administration. Biden told House Democrats on Wednesday that while he was open to tightening the eligibility for his proposed $1,400 stimulus checks, any move to cut the payments’ base amount would mean starting his presidency with a broken promise.

England’s chief medical officer said the UK is “past the peak” of the current wave of the pandemic, with hospitalisations and deaths on a “downward slope.” The country reached the milestone of vaccinating 10 million people, about 15% of the population. Britain’s immunisation is on track to provide shots to 15 million citizens and carers at greatest risk from the disease by Feb. 15. Johnson said it will only be possible to begin easing the lockdown three weeks after that date.

GBP

Sterling is lower against most majors overnight. Chancellor Rishi Sunak is planning to end the “temporary” £20 a week uplift in universal credit after April by offering an upfront payment of at least £500. Sunak is concerned that the £1,000 annual benefits boost, which costs the exchequer about £6bn a year, could become permanent and has warned Tory MPs that tough choices on public spending lie ahead. A cabinet split broke into the open on Wednesday as Thérèse Coffey, work and pensions secretary, criticised the chancellor’s plan.

EUR

The euro is lower against the dollar and higher against the pound in the early morning trade. The U.K. and EU agreed to work “intensively” to settle their differences over the Northern Ireland border as they seek to dial down a controversy which has threatened to reignite the most contentious element of the Brexit settlement. Spain’s government is considering debt relief for companies as extended pandemic restrictions and a slow European vaccine rollout tip the economy into another downturn.

USD

The dollar is higher against most majors this morning. U.S. economy is showing some scattered signs of picking up from an end-of-year slowdown, muddying President Joe Biden’s efforts to win congressional passage of a $1.9 trillion stimulus package. New claims filed for unemployment benefits have fallen for two straight weeks, while January payrolls are forecast to rebound from a December swoon in data out on Friday.

Markets

S&P 500 futures slipped after the gauge closed barely in the green Wednesday following its biggest two-day rally in almost three months. South Korean and Hong Kong stocks led Asian bourses lower. Chinese shares retreated amid hawkish comments on a trade blacklist from President Joe Biden’s nominee for Commerce secretary Gina Raimondo. Earlier, the Nasdaq 100 closed lower as Amazon.com Inc. slumped. Oil continued its ascent as OPEC+ said it will keep pushing to quickly clear the surplus left behind by the pandemic. A widely watched segment of the Treasury yield curve reached its steepest level since 2016. Gold dipped.

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

10:00 a.m.: ECB Economic Bulletin

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

11:00 a.m.: Euro-Area Dec. Retail Sales

1:00 p.m.: BOE Rate Decision

1:20 p.m.: ECB’s Cos speaks

2:30 p.m.: Czech Rate Decision

2:30 p.m.: U.S. Initial Jobless Claims

NATO’s Stoltenberg speaks

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