Morning Report – Tuesday 2nd February

Jon Robson, Head of Trading

“Risk sentiment is improving as market participants shift their focus back to both earnings and broader economic conditions. Sterling is on its best monthly streak since 2012 on hopes the U.K. is moving towards reopening the economy in Spring and that the Bank of England will refrain from implementing negative interest rates.”

 

Main Headlines

President Joe Biden intends to continue pushing for a large pandemic relief bill, even if he has to bypass Senate Republicans, his press secretary said, hours after what one Republican senator called a “very productive” meeting on stimulus options. Ten Republican senators who had outlined their coronavirus-relief offer on Monday met with Mr. Biden yesterday evening, in Biden’s first big negotiating session with political rivals since becoming US president. The Republican offer is far below what the Biden administration and many Democrats believe is needed to prop up the US economic recovery this year as the country continues to suffer fallout from the pandemic.

 

U.K. Chancellor Rishi Sunak has agreed to tie his own hands at next month’s Budget by sticking with the Conservatives’ “triple tax lock”, which stops him raising the rates of income tax, national insurance or value added tax. Treasury officials had hoped Mr Sunak would abandon the Tories’ 2019 election manifesto commitment to start curbing a deficit that is expected to top £400bn in 2020-21 because of the coronavirus crisis.

 

GBP

Sterling is higher against most majors overnight. U.K.’s vaccine rollout is outpacing the U.S. and Europe, with about nine million people inoculated so far. Sterling is the only G10 currency to hold its own against the dollar this year. The confidence in the pound has led markets to push back bets for a Bank of England interest-rate cut to next year, even with policy makers set to publish the responses to a consultation on negative rates on Thursday.

 

EUR

The euro is higher against the dollar and lower against the pound this morning. The fallout from European Union’s U-turn over vaccine export controls continues, with European Commission President Ursula von der Leyen trying to deflect blame to one of her deputies, trade chief Valdis Dombrovskis. Johnson & Johnson will ship some Covid-19 vaccines ordered by the EU to the U.S. for the final stage of production, raising fears about more delays to the rollout. Chancellor Angela Merkel, meanwhile, pledged a vaccine for all Germans by September, with the caveat that this depends on drugmakers meeting their delivery commitments.

 

USD

The dollar is weaker against most majors in the early morning trade. Vaccine rollout under Biden struggles to live up to his campaign pledge to “move heaven and earth” to improve distribution. The US was the first country in the world to authorise two vaccines, but it has fallen behind in the international race to get jabs into arms. Mr Biden has promised 100m vaccinations will be administered in his first 100 days in office but this level would be reached even at the pace achieved during Donald Trump’s final days in office.

 

Markets

Major Asian markets climbed, with technology shares outperforming ahead of earnings Tuesday from Amazon.com Inc. and Google’s parent Alphabet Inc. S&P 500 futures rose after the gauge rebounded from last week’s selloff in a broad-based advance. European contracts pointed higher. Silver retreated after a key exchange hiked trading margins following a buying frenzy. Treasuries were steady, gold dipped and oil climbed.

 

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

8:00 a.m.: U.K. Jan. Nationwide House Prices

8:45 a.m.: France Jan. CPI

9:00 a.m.: Spain Jan. Unemployment

10:00 a.m.: Italy 4Q GDP

11:00 a.m.: Euro-Area 4Q GDP

11:00 a.m.: U.K. sells bonds

11:30 a.m.: Germany sells bonds

12:30 p.m.: U.K. sells bonds, ESM sells bills

4:00 p.m.: ECB’s de Cos speaks

France’s Macron speaks at EU Parliament

Court hearing scheduled for Russian opposition leader Alexey Navalny

Africa Mining Indaba conference

Corporate Events

Earnings include BP, Ferrari, Coloplast, Siemens Energy, Telenor, Amazon, Alphabet, Alibaba, Pfizer, Exxon

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