- Yellen is expected to call on the US to ‘act big’ with fiscal stimulus in the hopes that the benefits will outweigh the substantial costs.
- The dollar will also be in focus today as Yellen is expected to call for the markets to freely decide on the strength of the greenback.
- European markets were trading broadly flat or slightly lower at midday.
- In commodities, oil prices managed to gain ground despite the International Energy Agency downgrading its oil outlook for 2021.
US markets to open sharply higher
Today is the start of the trading week for US markets, having been closed yesterday because of Martin Luther King’s birthday.
The S&P 500 is called to open 1.1% higher at 3798.5 from 3757.6 at the close last Friday.
The Dow Jones is set to open 0.8% higher at 31020.0 after ending last week at 30761.0.
Earnings season is in full swing following updates from the major US banks. Forex.com analyst Matt Weller has a look at what to expect from Netflix’s earnings today, as the streaming giant kicks off the calendar for technology stocks.
Yellen to call on US government to ‘act big’ with fiscal stimulus
Janet Yellen is expected to lay out the case for president-elect Joe Biden’s new $1.9 trillion fiscal stimulus plan during her confirmation hearing as Treasury secretary today.
Yellen, who has previously chaired the Federal Reserve, is set to urge the government to continue pumping significant sums into the economy without worrying too much about the debt that is piling up. Biden’s new stimulus plan is made up of around $1 trillion in relief for American citizens, $440 billion for small businesses and $415 billion to improve the country’s vaccination programme.
‘Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden’, she is expected to say. ‘But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time’.
Yellen will takeover as Treasury secretary from Steven Mnuchin if the Senate approves her appointment.
Biden to maintain travel restrictions on Europe
President-elect Joe Biden has said his administration intends to extend a travel ban applying to much of Europe and other countries like Brazil after president Donald Trump said he would lift them.
The travel restrictions were first introduced in 2020 as a result of the pandemic and on Monday Trump signed an order that said the measures could be lifted from January 26. However, incoming president Joe Biden – who will be inaugurated on Wednesday – immediately said the restrictions will remain in place.
The restrictions have prevented most non-US citizens from entering the country if they have been in Brazil, the UK or most of Europe.
‘With the pandemic worsening, and more contagious variants emerging around the world, this is not the time to be lifting restrictions on international travel,’ said Jen Psaki, a spokesperson for Biden. ‘In fact, we plan to strengthen public health measures around international travel in order to further mitigate the spread of COVID-19.’
European markets trade flat-to-lower at midday
France’s CAC 40 was down 0.2% at midday at 5621.3 from 5634.3 at the close yesterday.
Germany’s DAX was broadly flat at 13894.0 from 13894.5 at the end of yesterday’s trading session.
Forex.com analyst Fiona Cincotta has a technical look at the DAX, and whether it can break back through the 14000 mark.
Meanwhile, over the Channel, the FTSE 100 was trading down 0.1% at 6729.3 from 6737.3 at the last close.
In today’s Top UK Stocks to Watch, AO World shares dive despite posting strong growth, Wood Group wins a new contract, Premier Foods forecasts a jump in profits, Experian posts strong topline growth, while Centamin benefits from higher gold prices.
Germany to extend lockdown until mid-February
Germany is expected to extend lockdown rules until mid-February as chancellor Angela Merkel meets regional leaders today to discuss how to stop the spread of the coronavirus, especially new variants.
The lockdown is currently due to expire at the end of January but is now likely to be extended for two weeks, sources told Reuters.
Will the UK hike corporation tax to plug virus deficit?
There are reports that chancellor Rishi Sunak is preparing to raise corporation tax when he delivers his next budget in March as a way of raising funds to close the huge budget deficit created during the pandemic.
With the Conservatives determined to stick to its promises not to increase income tax, VAT or national insurance, Sunak has limited ability to manoeuvre. The FT reported Sunak has told Treasury officials that the UK’s tax rate would be ‘competitive’ with other G7 countries. The UK’s corporation tax currently sits at 19%, while the average rate in the G7 is closer to 27%, according to the Tax Foundation.
The argument for raising tax for businesses is that they have received huge taxpayer-funded support during the pandemic and it is now time for them to give something back. However, many businesses are still struggling and unable to accommodate a hike in taxes right now.
Interestingly, Sunak will have to provide more support for businesses in March whilst starting to also get public finances back on track. The Confederation of Business Industry said British companies need another £7.6 billion of emergency help. ‘We just have to finish the job. Now would be a very odd time to end that support,’ said the CBI’s director general Tony Danker.
China to maintain economic support through pandemic
China will continue to provide the necessary support to businesses as they recover from the pandemic and avoid any ‘policy cliff’, according to senior official Yan Pengcheng, director of General Office at the National Development and Reform Commission.
‘Considering some micro market entities will still need to undergo a period of recovery - some small firms just started to ‘get well from a serious illness’, while others have yet to regain their stamina - macro policies will continue to maintain necessary support,’ he said.
China revealed it was one of the few countries that still managed to grow in 2020 despite the pandemic derailing economies around the world, posting 2.3% GDP growth and revealing that it had accelerated in the latter end of the year.
Forex: Yellen more open to weaker dollar
The US dollar will be in focus ahead of Yellen’s speech as she is expected to commit to allowing the markets to decide the value of the dollar with less intervention.
‘The value of the U.S. dollar and other currencies should be determined by markets. Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy,’ Yellen will say later, according to the Wall Street Journal.
That fares very differently to the Trump administration’s view on the dollar that saw him lament the greenback’s strength, claiming it gave other countries a competitive edge.
‘The United States doesn't seek a weaker currency to gain competitive advantage," she is prepared to say, according to the WSJ. "We should oppose attempts by other countries to do so,’ Yellen will add.
GBP/USD was trading at 1.36173 at midday, up 0.2% from 1.35862 at the end of play on Monday.
EUR/USD traded at 1.21280 at midday, 0.4% higher from 1.20776 at the close yesterday.
Meanwhile, EUR/GBP was up 0.2% at 0.89076 at midday after ending yesterday at 0.88893.
Commodities: IEA downgrades 2021 oil outlook
Brent traded 1.4% higher at midday at $55.49 a barrel from $54.70 at the close yesterday, while WTI had risen to $52.69 from $52.12.
The International Energy Agency said a recovery in oil demand is unlikely to happen until the second-half of 2020, when countries can get on top of their vaccination programmes. It said border closures and lockdowns will ‘continue to constrain fuel demand until vaccines are more widely distributed, most likely only by the second half of the year’.
‘This recovery mainly reflects the impact of fiscal and monetary support packages as well as the effectiveness of steps to resolve the pandemic,’ the IEA said.
As a result, it said oil demand will be 600,000 barrels per day less than previously forecast in the first quarter of 2021, and 300,000 barrels less for the whole of 2021. Still, the industry is on course for a strong recovery to 96.6 million barrels per day in 2021 from around 91 million barrels daily in 2020, when demand was severely knocked by the pandemic.
Gold was trading at $1843 per ounce at midday, up 0.3% after ending yesterday at $1837.
Market-moving events in the economic calendar
The headline event in an otherwise light economic calendar is Janet Yellen’s speech and confirmation at 1500 GMT. The Bank of England’s chief economist Andrew Haldane will make a speech at 1800 GMT