Morning Report – Wednesday 27th January

Jon Robson, Head of Trading

“Multiple asset classes are seeing an increase in risk appetite, which is weakening the U.S. currency. Hesitant to buy dollars before the Federal Open Market Committee concludes, traders are opting for risk-sensitive currencies, such as the pound.”

Main Headlines

The IMF raised its forecast for global growth this year, pinning its hopes on vaccine rollouts and more fiscal stimulus. It is, however, worried about the risk new Covid variants pose to the post-pandemic recovery. According to its latest World Economic Outlook, published Tuesday, the institution now expects the global economy to grow 5.5% this year — a 0.3 percentage point increase from October’s forecasts.

Global virus infections topped 100 million. The U.K. became the first country in Europe to surpass 100,000 deaths. Britain will introduce a limited hotel quarantine system for passengers arriving from the highest-risk countries, according to a person familiar with the matter.

GBP

Sterling is stronger against the dollar, climbing to its highest since May 2018 overnight. This is despite U.K. unemployment rate increasing and the employment rate continuing to decline in three months to November, as shown by data from the Office for National Statistics on Tuesday.

U.K. Chancellor of the Exchequer Rishi Sunak will hold talks with his Swiss counterpart on Wednesday as the two countries seek to deepen financial services ties in the wake of Brexit.

EUR

The euro is mostly unchanged overnight, edging slightly higher against the dollar.

European Central Bank policy makers have agreed to look deeper into the euro’s appreciation against the dollar since the start of the pandemic, focusing on whether it’s driven by differences in stimulus policies compared with the U.S., according to officials familiar with the matter. Depressing inflation could force the central bank to provide more monetary stimulus, even as it acknowledges mounting risks to financial stability.

USD

The dollar is weaker against most majors this morning. Markets wait on comments from Federal Reserve Chair Jerome Powell, who is likely to renew a commitment to ultra-easy policy. Economists expect the chairman to emphasise the risks of exiting too early over moving too late. Consensus sees policy unchanged for months to come, with the bank likely to give plenty of advance notice before tapering next year. The Fed chair is due to speak at a news conference after the central bank’s two-day policy meeting that ends Wednesday.

Markets

Asian stocks fluctuated Wednesday after their biggest slide in two months as investors mulled a slew of earnings reports and awaited the conclusion of a Federal Reserve policy meeting. Equities climbed in Japan and fell in Australia, which reopened after a holiday. Nasdaq 100 futures jumped after Microsoft Corp.’s fiscal second-quarter sales rose at a faster clip than analysts had projected. S&P 500 and European contracts dipped. The U.S. benchmark ended an up-and-down session slightly lower on Tuesday. Elsewhere, Treasury yields and gold were steady, while oil advanced.

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

8:00 a.m.: Germany GfK Feb. Consumer Confidence

8:45 a.m.: France Jan. Consumer Confidence

11:00 a.m.: ECB’s Villeroy speaks

11:00 a.m.: Italy sells bills, U.K. sells linkers

11:30 a.m.: Germany sells bonds

12:00 p.m.: France 4Q Total Jobseekers

4:00 p.m.: ECB’s Lane speaks

4:30 p.m.: EIA Crude Oil Inventory Report

8:00 p.m.: FOMC Rate Decision

8:30 p.m.: Fed’s Powell speaks

Bloomberg’s The Year Ahead

Davos Agenda

Corporate Events

Earnings include Apple, Tesla, Facebook, AT&T, Abbott, Boeing, Blackstone, Lonza, Sartorius

6:30 p.m.: AstraZeneca speaks with EU officials about delays to vaccine delivery