Morning Report – Tuesday 26th January

Jon Robson, Head of Trading

“The prospect of U.S. fiscal stimulus continues to set the mood for global asset prices. Volatility spiked in equities with talks of its delay, which lowered investors’ appetite for riskier currencies and is giving temporary support to the dollar.”

Main Headlines

With Microsoft, Verizon and Johnson & Johnson reporting today and Apple, Facebook and Tesla due tomorrow, it’s peak earnings season in the U.S. Companies representing 35.8% of the S&P 500’s market capitalisation report this week. So far, most U.S. companies which posted profit that beat analyst expectations for the fourth-quarter ended up underperforming the benchmark, as investors focus on outlook instead.

The U.K.’s unemployment rate climbed less than economists expected in the three months to November, as an extension of government aid helped protect some jobs amid a widespread lockdown. The rate rose to 5% in the period, lower than the 5.1% predicted by economists, but still the highest since 2016, the Office for National Statistics said Tuesday.

GBP

Sterling is lower against the dollar overnight. Britain’s vaccine rollout gathered pace on Saturday, as the number of people with their first dose reached 5.9 million. Data showed on Monday that the number of shoppers heading out to retail destinations across Britain rose by 9% last week from the previous week, indicating signs of “lockdown fatigue”. Ministers will meet today to consider further travel measures – including asking those coming to the UK to pay to quarantine in hotels.

EUR

The euro is weaker versus the dollar in early morning trade. German business confidence slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in Europe’s largest economy, which will stagnate in the first quarter. Political uncertainties in Italy have continued: Prime Minister Giuseppe Conte is widely expected to resign today.

USD

The dollar is stronger against most majors this morning. President Joe Biden said he’s open to negotiation on his $1.9 trillion proposal, and is hopeful to bring Republicans behind it, though didn’t rule out pursuing a Democrat-only route. Chuck Schumer said earlier Monday he aims to secure passage of the next round of relief by mid-March, just when jobless benefits from the last package will be running out.

Markets

Stocks fell along with U.S. futures Tuesday as investors mulled a possible delay in the planned U.S. fiscal-relief package against a backdrop of concern that some markets are overextended. A gauge of Asia-Pacific equities at one point slid the most in about two months, with shares in South Korea and China underperforming. S&P 500 futures and Nasdaq 100 contracts pointed lower, with investors awaiting earnings from some of the biggest companies. Treasuries held an overnight climb and crude oil fluctuated, finishing higher. Gold rose. European equity futures were little changed.

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

8:00 a.m.: U.K. Nov. Unemployment

9:00 a.m.: Spain Dec. PPI

11:00 a.m.: U.K., Italy sell bonds

12:30 p.m.: U.K. sells bonds

2:00 p.m.: Hungary Rate Decision

5:00 p.m.: Russia Dec. PPI

5:00 p.m.: ECB’s Centeno, de Cos speak

Davos Agenda continues

Bloomberg Live’s The Year Ahead

The Future Investment Initiative in Riyadh

IMF releases World Economic Outlook

Corporate Events

Earnings include LVMH, EQT, Microsoft, J&J, Verizon, NextEra, Texas Instruments, Starbucks, AMD, Raytheon, AmEx, 3M, GE, Lockheed Martin