European Market Open: Fears over coronavirus variants prompt lower start

European markets are called to open lower this morning, amid growing concerns that new variants of the coronavirus will derail vaccination programmes and weigh on hopes for a global economic recovery this year.

Downtrend 3

  • The UK defends the effectiveness of the AstraZeneca vaccine as it prepares to tighten rules for travellers entering the country.
  • UK retail sales suffer during the latest national lockdown.
  • The EU is expected to reject the UK’s request to extend a grace period applied to Northern Ireland, and the bloc backs Australia’s attempts to tighten regulation for Big Tech.
  • In commodities, oil prices continue to climb and now trade at 13-month highs.

FTSE 100 to open lower

The FTSE 100 is set to open 0.2% lower this morning at 6518.8 from 6533.1 at the end of play yesterday.

European markets to follow lower

France’s CAC 40 is set to open 0.1% lower at 5691.2 from 5699.0 at the last close.

Germany’s DAX is called to open 0.3% lower at 14049.5 from 14089.8 at the end of play yesterday.

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UK stands by AstraZeneca vaccine after South Africa casts doubt

UK prime minister Boris Johnson has said he is confident that the vaccines the country is using are helping to reduce deaths and severe illness among the population, after a small study in South Africa cast doubt over the effectiveness of the AstraZeneca vaccine against variants.

‘We think that both the vaccines that we’re currently using are effective in, as I say, in stopping serious disease and death,’ Johnson told reporters. ‘We also think in particular in the case of the Oxford AstraZeneca vaccine that there’s good evidence that it is stopping transmission, as well, I think 67% reduction in transmission’.

The UK government has already warned that booster shots may be needed later this year to provide adequate protection against new variants, and that annual vaccinations could be needed in the future to keep up with the virus mutation.

UK to introduce tougher testing for travellers

The UK is expected to announce a new system for travellers entering the country from overseas that will require them to take two coronavirus tests during their self-isolation period after they have landed.

Currently, travellers must be able to show they have recently had a negative coronavirus test before being allowed to fly into the UK, but the new rules will also require them to be tested twice during their 10-day self-isolation period – one on day two and another on day eight. Notably, reports suggest the majority of people will be able to continue to self-isolate in their own accommodation, with arrivals from hotspots with new variants being required to isolate in government-approved hotels.

UK retail sales suffer during latest lockdown

UK retail sales suffered a 1.3% year-on-year fall in January, according to the British Retail Consortium, as people spent less after being plunged into another national lockdown after rules were eased over the holiday season.

‘The current lockdown has hit non-essential retailers harder than in November, with the new variant hampering consumer confidence and leading customers to hold back on spending – especially on clothing and footwear,’ said the BRC’s chief executive Helen Dickinson.

Separate data from Barclaycard only made the situation look bleaker, with overall consumer spending falling 16.3% year-on-year in January. Whilst there has been a surge in sales online and for the likes of takeaway deliveries, this has not been enough to offset the hit taken by the high street – with everything from pubs to hairdressers still closed.

The data comes as some of the country’s biggest retailers, including Tesco, call for the government to permanently cut business rates if it wants physical stores to survive. That builds on reports that the government is considering levying an online sales tax on internet retailers.

EU to reject UK’s request for longer grace period for Northern Ireland

The EU is expected to reject the UK’s request to extend a grace period to smooth out post-Brexit trade in Northern Ireland for two years, the Telegraph reported.

Under the Brexit deal signed between the pair late last year, goods being traded between Northern Ireland and Britain has been governed under a grace period designed to soften any disruption. However, this is due to expire at the end of March and, amid continued problems, the UK government has asked the EU if it can be extended until 2023.

The Telegraph, citing several unnamed sources from both sides of the Channel, reports that the European Commission is set to reject such a long extension and is only open to agreeing to a three-to-six month extension.

EU looks to Australia to lead the way on Big Tech regulation

The EU is considering incorporating some new rules for Big Tech being introduced in Australia in its own legislation designed to put the industry on a tighter leash.

Australia is currently in the process of passing laws that would require the likes of Google and Facebook to pay companies for news displayed on their platforms and websites. This has prompted threats from both companies, with Facebook threatening to prevent users from sharing news and Google threatening to pull its search engine out of the country altogether.

The Financial Times reports that the EU is considering incorporating some of Australia’s reforms in its own Digital Services Act and Digital Markets Act.

French economy remains on course to grow 5% in 2021

The Bank of France has said the French economy should still be able to rebound by 5% this year after shrinking 8.3% in 2020, representing the deepest recession since the Second World War.

‘I can confirm our forecast for 5% growth for the whole of 2021. It’s robust and rather cautious while reflecting of course the great uncertainty around the health situation,’ said governor Francois Villeroy de Galhau.

Forex: Dollar weakens

The dollar recouped some losses against the pound and the euro yesterday after losing ground following the release of weak jobs data last week, but the dollar was giving back those gains this morning.

EUR/USD was up 0.2% this morning at 1.20776 from 1.20486 at the end of play yesterday.

GBP/USD was up 0.2% this morning at 1.37703 from 1.37408 yesterday.

EUR/GBP was broadly flat this morning at 0.87687 from 0.87708 when markets closed yesterday.

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Commodities: Oil prices continue to rally higher

The rally in oil prices continues, with both Brent and WTI now trading at 13-month highs as markets hope that a global economic recovery can be staged this year and that central banks and governments will continue to support their economies in the meantime.

The main driver has been coming from the US, where the vaccination programme has been accelerated and recent jobs data has only underlined the need for president Joe Biden’s $1.9 trillion stimulus plan. The fact OPEC+ have maintained output cuts has also supported prices.

Brent was trading at $61.13 a barrel this morning, up 0.8% from $60.63 when markets closed yesterday, while WTI followed 0.7% higher to $58.45 from $58.02.

The API weekly crude oil stocks data, which provides an insight into demand in the US, will be released at 2130 GMT.

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Gold traded at $1840 per ounce this morning, up 0.5% from $1831 when markets closed yesterday.

Silver was up 0.4% this morning at $27.38 per ounce from $27.27 at the last close.

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Market-moving events in the economic calendar

The economic calendar is light today. The headline event is a speech from the ECB’s Philip Lane at 1500 GMT and Australia’s Westpac consumer confidence survey tonight at 2330 GMT.

Look at all the scheduled events for today using our economic calendar, and stay up to date with the latest news and analysis here.

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