January 31, 2022

“The Ruble strengthens against the dollar, after Moscow declares intentions to continue negotiation with the West over Ukraine crisis. Meanwhile, the US senate is closer to reaching a deal on legislation to target Russian banks.”

Tim Hallinan – Trading Director

Main Headlines

Last week, US President Joe Biden warned Ukrainian leader Volodymyr Zelensky that there is a “distinct possibility” that Russia could take military action against the former Soviet state in February. Moscow has repeatedly denied having any such plans. Instead, it maintains that it will not start a war in Ukraine but warned that the US and NATO have left little room for compromise after ignoring its demands. Meanwhile, Ukraine has played down Pentagon warnings that Russia has amassed sufficient military assets along the Ukrainian border to launch an invasion, with the deputy defence minister branding reports that blood supplies had been moved close to the border “psychological warfare.” A US defence official said that Russia had moved blood close to its border with Ukraine, in a move that US military experts previously said would be a sign that Putin was moving closer to an invasion.

Russian oligarchs with links to Vladimir Putin and UK investments will be hit by tough sanctions if Moscow invades Ukraine, British foreign secretary Liz Truss will tell the House of Commons on Monday. Truss on Sunday said she would set out legislation that would give Moscow notice of a “severe economic cost” for any incursion into Ukraine by strengthening Britain’s ability to target Russian assets in the UK.  UK prime minister Boris Johnson has responded to the Ukraine crisis by offering NATO a further 900 troops for deployment in Estonia, which would double the size of the British force in the Baltic state that borders Russia. Johnson has also offered to dispatch fighter jets to Romania and Bulgaria and warships to the Black Sea. Under existing UK rules, which reflect EU arrangements when Moscow annexed Crimea in 2014, Britain is only able to impose sanctions on Russians linked to the destabilisation of Ukraine. UK officials say that under Truss’s new legislation, the government would be able to sanction any individual or business of economic significance to the Kremlin.

GBP

Sterling is well bid against most major currencies overnight. The UK’s devolved administrations have warned that Boris Johnson’s plans to cut £1bn-worth of red tape for business by removing legacy EU laws risk driving a “coach and horses” through the country’s constitutional settlement. Johnson is to unveil a Brexit freedoms bill on Monday which will make it easier to amend or remove EU laws that remained on the UK statute book after Brexit as a bridging measure to provide legal certainty to business and society. The Bank of England is expected by economists and financial markets to impose the first back-to-back interest rate rises since 2004 when it meets to decide monetary policy this week. The prime minister and Rishi Sunak will this week seek to finalise a package of measures to help millions of low-income UK households with a looming big increase in their energy bills. Meanwhile, UK homeowners notched up more than £800bn in additional value to their properties last year on a combined basis, taking the total worth of housing stock to a record £8.4tn, according to new analysis.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Record euro area inflation rates mean price pressures will top the agenda for European Central Bank policymakers meeting on Thursday. Price pressures remain strong and EU markets want a sense of whether the ECB is preparing to a more hawkish stance. Italy finally decided on its leadership. Sergio Mattarella will stay on as head of state, while Mario Draghi remains PM. Draghi is said to have persuaded the president to put off his retirement to break a deadlock. Elsewhere, Portugal PM Antonio Costa is set to govern for a third term after winning yesterday’s parliamentary election.  Germany may scrap a levy on electricity bills that is used to support renewable power from the second half of the year, to ease the strain of rising energy costs on households, Finance Minister Christian Lindner was quoted as saying on Sunday. Meanwhile, the German economy contracted over the last three months of 2021 while the French economy expanded, pointing to contrasting fortunes for the euro zone’s two largest economies during the pandemic.

USD

The dollar is weaker than most major currencies in the early morning trade. US senators are very close to reaching a deal on legislation to sanction Russia over its actions on Ukraine, including some measures that may take effect before any invasion. Senators Bob Menendez and James Risch hoped to move forward on the bill this week. US labour prices rose sharply because the tempo of inflation quickened, offering extra cowl for the Federal Reserve to behave forcefully to mood demand on the earth’s largest economic system. The US Department of Agriculture said on Sunday it will help fund a new container yard for agricultural exports at California’s Port of Oakland, as the government, ports and food companies scramble to ease costly shipping delays. More than 2ft of snow has fallen in some areas of the US East Coast as New York declared a state of emergency after “historic” blizzards struck the area. Meanwhile, more than 1,400 U.S. flights were cancelled after the nation’s northeast states were walloped a day earlier by a deadly winter storm that prompted several states to declare emergencies.

Markets

Stocks rose Monday amid a rally in Chinese technology shares, while US equity futures stabilized as some of the angst over the prospect of tighter Federal Reserve monetary policy eased. Asia-Pacific equities rose for a second day, helped by a rally in a Hong Kong tech index on bets that the worst of Beijing’s crackdown on the sector may be over. A clutch of markets, including on mainland China, are closed for the Lunar New Year holiday. S&P 500 and Nasdaq 100 contracts fluctuated, while those for Europe increased over 1%. The dollar, the yen and Treasuries fell. Japan’s benchmark bond yield climbed to the highest level since the introduction of negative-rate policy. Crude oil advanced, in part on the risk that any Russian invasion of Ukraine could roil energy flows. Gold continued to struggle. Strategists have begun to argue that global stocks are due a steadier period, even if temporarily, after shedding over 6% in January. Some speculative S&P 500 bets in the futures market are the most bullish since 2018. The Fed’s hawkish pivot to fight inflation and an uneven company earnings season have stoked market volatility this month.

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

8:00 a.m.: Turkey Dec. trade balance
9:00 a.m.: Spain Dec. retail sales, Jan. CPI
11:00 a.m.: Italy 4Q GDP
11:00 a.m.: Euro-area 4Q GDP
11:00 a.m.: Norway sells bills
2:00 p.m.: Germany Jan. CPI
2:50 p.m.: France sells bills
EIA releases production report and monthly petroleum supply

Corporate Events

Earnings include NXP, L3Harris, Trane, Otis, Graco, NEC

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.