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Morning Report – Tuesday 16 February

Jon Robson, Head of Trading

“Sterling continues to extend gains across the board amid the success of the UK’s vaccine rollout programme. Positive market sentiment across the board and inflationary pressures are holding the dollar back”.

Main Headlines

Joe Biden is set to make his first official trip outside Washington as President to make the case for a $1.9trillion stimulus package and pressure Congress into closing out negotiations. The President will hope to refocus political attention on combatting the economic fallout of Covid-19 following Trump’s acquittal over the weekend. Nancy Pelosi has announced an independent commission, modelled on the 9/11 inquiry, to investigate the tragic events at the Capitol last month.

Ahead of the 22 February announcement, Boris Johnson yesterday promised a “cautious but irreversible” lifting of restrictions and a path back to normality. Preliminary figures suggest that the vaccination programme in the UK is already reducing hospital admissions and deaths, with data indicating a reduction in transmission.

GBP

Sterling is stronger versus other major currencies overnight. The IFS has warned that the UK may require c.£60 billion to balance the books, setting the mood for the upcoming Treasury budget on March 3. Meanwhile, the UK’s new hotel quarantine system has been criticised by Labour and Border Force staff after a chaotic start, in which high-risk passengers reportedly mixed freely with other travellers prior to isolating.

EUR

The euro is higher against the dollar and lower against the pound in the early morning trade. Separatist parties supporting Catalonian independence from Spain have won over half the popular vote in a regional election, reinforcing an increasingly fragmented political landscape and all but guaranteeing that Spain’s politics will continue to be dominated by the question of an independence referendum.

USD

The dollar is weaker against most majors in the early morning trade. Arctic weather conditions in the Midwest have left up to 5 million US households without electricity as the unprecedented cold snap crippled power plants and wind turbines in Texas. Biden has approved an emergency declaration for Texas.

Markets

The equity rally continued Tuesday, stock futures pointed higher and bonds fell on optimism for the global recovery amid the Covid-19 vaccine rollout. Oil held gains as a U.S. cold snap roils energy markets. S&P 500 futures and Asian stocks pushed higher, though traders pared the move after a report that China is mulling limiting rare earth mineral supplies to U.S. defense contractors. Japan’s Nikkei 225 Stock Average cemented its vault past the 30,000 level. European contracts edged up. Ten-year Treasury yields jumped to the highest in almost a year amid this week’s global debt selloff. Crude oil traded around a 13-month high on the deepening U.S. energy crisis due to freezing weather. Copper hit levels last seen in 2012. U.S. markets were closed for Presidents’ Day on Monday. Chinese markets remained shut for the Lunar New Year holiday.

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

7:00 a.m.: Saudi Arabia Jan. CPI

7:30 a.m.: France 4Q unemployment

8:00 a.m.: Singapore budget balance

10:00 a.m.: Italy Dec. trade

10:30 a.m.: Spain sells bills

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

11:00 a.m.: Germany, Euro-Area Feb. ZEW survey

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

12:00 p.m.: Israel 4Q GDP

12:30 p.m.: ESM sells bills

1:00 p.m.: Turkey sells bonds

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

Euro-area finance ministers meet

Markets are closed in China, Taiwan and Vietnam

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