- US investors are preparing for earnings from Amazon and Alphabet after the closing bell today.
- European markets are largely trading higher today, with the FTSE 100 lagging behind and trading flat.
- Eurozone GDP reading beats expectations, but markets are bracing for a tougher period in Q1 2021.
- In forex, the euro comes under pressure following the GDP data and has lost ground against both the dollar and sterling.
- In commodities, oil prices climb to their highest level in almost a year while the frenzy behind silver fades out as prices fall lower.
US markets to open sharply higher
The S&P 500 is called to open 2.1% higher today at 3801.9 from 3771.7 at the close yesterday.
The Dow Jones is set to open 1.2% higher at 30437.0 today compared to 30217.5 at the end of play yesterday.
Apple and Alphabet to report earnings
Earnings season continues, with eyes on fourth-quarter results from Alphabet and Amazon that will be released after the market close today. You can read our earnings previews for Alphabet to find out what to expect.
Democrats ‘will not settle’ for smaller stimulus
President Joe Biden has said a smaller stimulus bill proposed by Republicans does not go far enough as Democrats continue to push ahead with their plans to unleash a $1.9 trillion package to help the US economy bounce back from the pandemic.
A group of 10 Republicans are spearheading an alternative stimulus bill worth closer to $600 billion as they continue to fear the hefty cost of the Democrat plan. They met with Biden yesterday to discuss their differences, but the president told the group that ‘he will not slow down work on this urgent crisis response, and will not settle for a package that fails to meet the moment’, according to White House spokesperson Jen Psaki.
Democrats, now in control of Congress with a majority in both the House and the Senate, filed measures to push the $1.9 trillion bill through yesterday to suggest they will push ahead with or without Republican support. The measure would mean the bill could pass on the simple majority that the Democrats have in the 100-seat Senate rather than the 60-seat threshold that usually applies.
Psaki confirmed that the president ‘reiterated that while he is hopeful that the Rescue Plan can pass with bipartisan support, a reconciliation package is a path to achieve that end’.
The Republican’s smaller bill has removed financial support for state and local governments and trimmed the value of the cheques to be sent to millions of Americans from $1400 to $1000.
European markets largely up at midday
France’s CAC 40 was up 1.1% at 5549.0 from 5488.8 at the end of play yesterday.
Germany’s DAX was up 0.8% at midday at 13770.0 from 13644.8 at the last close.
Meanwhile, over the Channel, the FTSE 100 was trading flat at 6487.0 at midday from 6486.1 at the end of play on Monday.
In today’s Top UK Stocks to Watch, BP swings to a large loss in 2020 as the pandemic hits oil demand, DCC said it will beat expectations if the weather holds up, Just Eat Takeaway raises EUR1.1 billion in bonds, Polypipe buys underfloor heating specialist Nu-Heat, and Virgin Money UK returns to profit.
Eurozone GDP beats expectations but outlook remains challenging
The eurozone economy held up better than expected during the final three months of 2020, but markets are bracing for a larger contraction in the first quarter of 2021 as lockdown restrictions were introduced.
The eurozone economy contracted by 0.7% in the fourth quarter of 2020 compared to the third and was down 5.1% compared to a year earlier. That outperformed expectations for a 1.0% quarterly decline and 5.4% year-on-year drop.
Notably, countries such as Spain and Germany saw GDP rise in the final quarter, but this was offset by larger declines in the likes of France and Italy.
While restrictions were not as strict during the quarter compared to initial lockdowns, many countries have either extended or introduced lockdown measures since the start of the year. This has cast doubt over the outlook for the first quarter of 2021, when the eurozone is expected to see a sharper fall in GDP.
The flash estimate suggests GDP contracted 6.8% in 2020 as a whole on a seasonally and calendar-adjusted basis, while the European Union reported a slightly milder 6.4% contraction. Eurostat said this was the steepest annual fall in GDP since 1995, even outdoing the 4.3% decline reported in 2009 when the bloc was in the middle of the financial crisis.
UK begins surge testing 80000 people to stop spread of variant
The UK has started a mass effort to test around 80000 people to stop the spread of a highly transmissible strain of the coronavirus originally discovered in South Africa.
Residents in eight areas of the country are undergoing mass door-to-door testing regardless if they are showing symptoms or not in an effort to find the source of the spread after several people were found to have the South African variant despite not having contact with anyone who has recently travelled – sparking fears that it has already spread across the country.
‘There’s currently no evidence to suggest this variant is any more severe. But we need to come down on it hard, and we will,’ said UK health secretary Matt Hancock yesterday.
Meanwhile, prime minister Boris Johnson has reportedly told ministers to start preparing to reopen schools as the number of coronavirus cases starts to fall thanks to the latest lockdown measures, according to the Telegraph.
Germany vows to vaccine all adults by the end of summer
Meanwhile, over in Europe, German chancellor Angela Merkel has vowed to vaccinate the country’s entire adult population by the end of the third quarter of 2021.
Merkel defended the slow start to the vaccination programme in Germany and in the EU, stating the bloc was keen to give regular approval to vaccines rather than emergency approvals used by other countries like the UK.
Germany is confident it can provide jabs to all its citizens even if a number of vaccines in the pipeline fail to make it to market and despite the fact that supplies will remain tight in the first quarter amid supply shortages across the bloc.
Will Japan be hit by Europe’s tighter grip on vaccine exports?
Fears are growing in Japan that new vaccine control measures in the EU will impact supplies of jabs to the country as it prepares to begin its vaccination programme this month.
‘The EU has enacted this export transparency mechanism, and it is affecting Japan’s supply schedule,’ warned Taro Kano, the minister in charge of Japan’s vaccination programme, without providing further detail.
Japan has ordered over 500 million doses of various vaccines, enough to easily inoculate its population of 126 million, but all of them are due to come from overseas, making it reliant on the likes of the EU and the US.
Meanwhile, Japan is expected to extend a state of emergency in Tokyo and other parts of the country for another month as it tries to keep on top of the virus ahead of its vaccination programme beginning.
Forex: Euro sinks
The euro was under pressure today following the release of the GDP data.
EUR/GBP was down 0.3% today at 0.87988 – its lowest level since May – from 0.88268 at yesterday’s close.
EUR/USD was down 0.3% at 1.20306 – its lowest level since the start of December – from 1.20603 yesterday.
Meanwhile, GBP/USD was trading broadly flat at 1.36642 from 1.36740 when markets closed yesterday.
Commodities: Brent climbs as silver frenzy fades out
Brent trades at $57.74 a barrel, up 2.5% from $56.34 at the end of play yesterday, while WTI was up 2.6% at $54.87 from $53.50. Brent now sits at its highest level since February 2020 while WTI is at its highest level since January 2020.
Forex.com analyst Fiona Cincotta takes a technical look at WTI as prices rise after OPEC members showed that they were cutting crude output and adhering to commitments on restraints.
WTI will be in play later when the API weekly crude oil stock figures for the week to January 29 is released at 2130 GMT.
Gold was trading at $1845 an ounce today, down 0.8% from $1861 yesterday.
Notably, movement in gold prices has been partly driven by a surge in interest in silver from Reddit-enthused retail traders shifting their interest from stocks like GameStop and AMC to the metal. Having surged on Thursday, Friday and again on Monday, prices have fallen back from record highs today. Silver briefly hit its highest level in 11 years yesterday.
Silver prices were down 5.3% today at $27.44 an ounce from $29.00 at the end of play yesterday.
Market-moving events in the economic calendar
In the economic calendar, there is the US Redbook index at 1355 GMT, the ISM-NY business conditions index at 1445 GMT and IBD/TIPP economic optimism data at 1500 GMT. The president of the US Federal Reserve Bank of New York, John Williams, will be giving a speech from 1800 GMT.
Attention then turns to Australia this evening with employment data due out at 2145 GMT alongside figures covering labour and construction.