European Market Open: Lower start ahead of BoE meeting
Joshua Warner February 4, 2021 2:16 AM
European markets are expected to open lower today ahead of the Bank of England’s meeting that is expected to reveal the central bank’s attitude toward the possibility of introducing negative interest rates.
- A UK trial is being launched today to study whether people can receive two different vaccines.
- The UK and the EU continue to clash over post-Brexit arrangements impacting Northern Ireland.
- In forex, sterling is in focus ahead of the BoE meeting while the dollar continues to strengthen.
- In commodities, oil prices find higher ground as OPEC+ sticks to its output plans.
FTSE 100 to open lower
The FTSE 100 is set to open 0.3% lower this morning at 6520.0 from 6540.5 at the end of play yesterday.
European markets to follow lower
France’s CAC 40 is to open 0.1% lower at 5563.7 from 5571.0 when markets closed yesterday.
Germany’s DAX is called to open 0.3% lower at 13947.0 from 13986.3 at the end of play yesterday.
Bank of England preview: what to expect
The Bank of England is in focus today, with the latest interest rate decision to be made at 1200 GMT, followed by a speech by the central bank’s governor Andrew Bailey at 1230 GMT.
The BoE is not expected to adjust its policy considering it raised QE purchases in November, although the health of the UK economy will be in question considering the country has re-entered a national lockdown since then. That will push attention to the bank’s outlook and the prospects for the economic recovery this year, while investors will also be closely watching the bank’s attitude toward the possibility of introducing negative interest rates.
UK to trial effectiveness of combining vaccines
The UK is today launching a trial to examine whether people could receive different coronavirus vaccines when they get their two doses of the jabs. It will assess the response in people having one jab of the vaccine developed by Pfizer and another by AstraZeneca.
If successful, it could provide some major flexibility as countries roll-out vaccines by allowing them to mix-and-match the two vaccines rather than committing people to have two doses of just one vaccine.
Recruitment for the trial will begin today and will involve around 800 participants and initial data is expected sometime in June.
That trial is being launched as the UK vaccinated its 10 millionth person yesterday.
UK to unveil route-map out of lockdown on February 22
UK prime minister Boris Johnson will unveil the country’s route-map to easing restrictions and eventually ending lockdown on February 22. Johnson said the government ‘will be setting out in as much detail as we can about where we see the dates, what the timetable could be, the earliest dates by which we want to do what’.
The prime minister, however, reiterated that getting pupils back into school was the main priority and that this would not happen until March 8 at the earliest, signalling that other restrictions will only be eased later in March at the earliest.
Separately, the UK is also expected to chair a meeting of finance chiefs from the G7 nations on February 12 to discuss how to stage a global economic recovery form the pandemic this year. Chancellor Rishi Sunak and BoE governor Andrew Bailey will host the virtual meeting that will be attended by peers from the US, Japan, Germany, France, Italy and Canada, plus members from the European Central Bank.
EU rejects UK request to extend post-Brexit grace period
The EU has rejected a request from the UK to extend a grace period on checks being made on goods travelling between Northern Ireland and Britain, stating the Brexit deal struck late last year has all the tools needed to resolve the matter.
UK cabinet minister Michael Gove wrote to the European Commission’s vice president, Maros Sefcovic, yesterday asking for a grace period applying to the transport of food between Northern Ireland and Britain be extended. A grace period of three months is already in place, but the UK now wants that pushed back to 2023.
Sefcovic and Gove spoke about the matter yesterday but failed to come to an agreement.
‘I really think that if all the flexibilities we put on the table and into the (Northern Ireland) Protocol would be used to the maximum, that all of the issues which we are discussing today would be really resolved,’ said Sefcovic.
Talks are expected to continue next week and prime minister Boris Johnson has said he wants the matter resolved by the end of March – when the existing grace period is due to end.
Draghi accepts invitation to form new Italian government
The former head of the ECB, Mario Draghi, has accepted a request from Italy’s president to form a new government to help steer the country through the pandemic and economic recovery.
‘Defeating the pandemic, completing the vaccination campaign, offering answers to citizens, relaunching the country: these are the challenges we face,’ Draghi said.
The challenge now for Draghi, who has no direct experience in the world of politics, will now try to form a coalition unity government. The stakes are high as failure would likely mean Italy would have to hold early elections that there is little appetite for in the middle of a pandemic.
Forex: Sterling in focus ahead of BoE meeting
Sterling is in focus today ahead of the BoE meeting, while the dollar is continuing to strengthen – particularly against the euro - as optimism grows that the US can recover quicker under president Joe Biden’s accelerated vaccination programme, while sentiment in Europe is still under strain thanks to the bloc’s slow start to vaccination.
EUR/GBP was trading at 0.88282 this morning, up 0.1% from 0.88193 at the end of play yesterday.
EUR/USD was down 0.2% this morning at 1.20123 – its lowest level since the start of December - from 1.20357 when markets closed yesterday.
Meanwhile, GBP/USD was down 0.3% in early trade at 1.36084 – a two-week low - from 1.36434 when markets closed yesterday.
Commodities: Oil prices continue to find higher ground
Brent traded at $55.85 a barrel this morning – reaching a new 11-month high - from $58.63 yesterday, while WTI hit its highest level in over a year at $56.10 a barrel from $55.90 yesterday.
OPEC+ said it would stick to its output policy at a meeting on Wednesday, signalling that producers are satisfied with the supply cuts agreed earlier this year. That, combined with the fact inventories are dwindling, has supported oil prices.
That means supplies will hold steady this month and that Saudi Arabia, by far the biggest producer in the group, will cut 1 million barrels a day from its output this month to build on the cuts it made in January. Reuters reported it had seen one document that suggests the group will keep the oil market in deficit throughout the whole of 2021.
‘While economic prospects and oil demand would remain uncertain in the coming months, the gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand’ OPEC said in a statement.
Gold traded at $1824 an ounce this morning, down 0.6% after ending yesterday at $1843.
Silver has also edged down 1.2% to $26.59 an ounce from $26.91 yesterday, as the surge in interest from social media-driven retail traders continues.
Market-moving events in the economic calendar
The headline event in the economic calendar today is the Bank of England’s interest rate decision at 1200 GMT, followed by a speech by the central bank’s governor Andrew Bailey at 1230 GMT.
Beforehand, there is the UK Markit construction PMI at 0930 GMT and eurozone retail sales at 1000 GMT.
This afternoon is then all about jobs. US initial and continuing jobless claims will be published at 1330 GMT, alongside non-farm payrolls and unit labor costs. You can read our comprehensive guide to non-farm payrolls here.
Eyes then turn to the Reserve Bank of Australia as governor Philip Lowe is due to speak at 2230 GMT. Japan’s overall household spending figures come out at 2330 GMT.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.