European Market Open: Lower start as Germany extends lockdown

European markets are called to open flat-to-lower today as coronavirus fears come back into play after Germany extended its national lockdown.

Charts (2)

  • In Europe, Germany extends its national lockdown and other countries are expected to follow, while EU regulators warn they are in no rush to grant market access to British finance services companies following Brexit.
  • Joe Biden will become president of the US today during his inauguration.
  • In forex, Janet Yellen’s dovishness yesterday failed to push the dollar much lower.
  • In commodities, calls for more fiscal stimulus in the US has supported prices on hopes that the economy can recover quicker and feed through to higher fuel demand.

FTSE 100 called to open flat

The FTSE 100 is set to open flat at 6736.5 after ending yesterday at 6736.3.

European markets to open lower

The Euro STOXX Index is called to open 0.2% lower this morning at 3604.5 from 3611.1 at the end of play on Tuesday.

France’s CAC 40 is set to open a smidgen lower today at 5609.8 from its last closing price of 5613.5.

Germany’s DAX is set to open 0.2% lower at 13840.0 from 13862.5 at yesterday’s close.

Start trading the opportunities with indices today.

Germany extends lockdown and other countries could follow

Germany has extended its national lockdown by an additional two weeks and introduced new rules to try to stop the spread of new variants of the coronavirus.

German chancellor Angela Merkel met regional leaders yesterday, who agreed to extend lockdown until February 14. It was originally due to expire at the end of January. Leaders also agreed to implement new rules including making it mandatory to wear medical face masks rather than homemade ones.

Other countries are expected to follow. Denmark said it is considering extending its lockdown into February, while the Netherlands is also set to introduce new measures later today.

Bank of England’s chief economist eyes second half recovery

The chief economist of the Bank of England Andy Haldane said he expects the UK economic recovery from the pandemic to pick up pace in the second half of the year and that further job losses should be limited.

‘If we get that recovery that I expect to start coming on stream, probably at a rate of knots from the second quarter, that will hopefully...improve the prospects of re-employment,’ Haldane said during a speech at a digital event for a University of Oxford college.

He also said that further job losses should be limited thanks to the furlough scheme that runs until the end of April. Haldane said that if the economy can stay within 5% to 10% of its pre-pandemic size that it should be able to avoid higher unemployment, which currently sits at around 8.5%.

EU in no rush to give City of London access to markets

The EU Financial Services Commissioner Mairead McGuinness said the EU is in no rush to grant access to British finance companies to the bloc until it is satisfied it does not pose a risk to financial stability.

Brexit has now been wrapped-up, but financial services were largely omitted from the deal struck between the UK and the EU. While talks are being held about maintaining similar financial regulation, McGuinness suggested UK financiers will not get actual market access any time soon. One reason the EU is nervous is that the UK is hoping to change some rules that could impact the agreement that both sides try to stay aligned under equivalence rules.

‘We do not like ‘light-touch’, and deregulation is not on our agenda,’ McGuinness said. ‘The idea of just granting equivalence to everything and then see what happens is not strategic, in my view. I would regard that as a bit of an experiment that I am not prepared to go along with.’

Joe Biden’s inauguration to be held later today

Joe Biden will be sworn-into the White House later today as he becomes president of the US, taking over from Donald Trump. The event is due to be start at 1600 GMT with the actual inauguration at 1700 GMT.  

Biden is expected to reiterate a message of unity, which could possibly be emboldened by the fact Trump will not be in attendance. He is also likely to speak about his top priorities, which include the coronavirus pandemic and his new proposal for a $1.9 trillion relief bill.

Security in Washington is high, with around 25,000 soldiers thought to be stationed there ahead of the event following the turmoil seen at the US Capitol building two weeks ago.

Yellen tells politicians to ‘act big’ on fiscal stimulus

Janet Yellen has raised expectations of more fiscal stimulus being introduced in the US after telling politicians to ‘act big’ during her confirmation hearing testimony, during which she backed Biden’s fiscal stimulus plan. Yellen is Biden’s nominee for Treasury secretary and is the former chair of the Federal Reserve.

Yellen argued that the economic benefits will outweigh the huge government debt that would pile up as a result. That has set a tone that the world’s biggest economy is willing to prop up the economy at any cost in the immediate future.

‘Without further action we risk a longer, more painful recession now and longer-term scarring of the economy later,’ she said.

Yellen also conceded that taxes, particularly that paid by corporations and wealthier citizens, will eventually have to rise to pay for the cost of the pandemic but suggested tax hikes were not a priority right now.

Forex: Dollar edges down after Yellen’s dovishness

GBP/USD traded 0.2% higher in early trade at 1.36615 from 1.36298 at the close on Tuesday.

EUR/USD was up 0.2% at 1.21509 from 1.21286 at yesterday’s close.

Yellen also committed to allowing the markets to decide the value of the dollar with less intervention during her testimony yesterday.

‘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 said.

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 added. "We should oppose attempts by other countries to do so’.

City Index analyst Joe Perry has a look at DXY and EUR/USD after Yellen’s dovishness failed to push the dollar much lower.

Meanwhile, EUR/GBP was broadly flat at 0.88944 after ending yesterday at 0.88983.

Start trading the opportunities in the forex market today.

Commodities: Oil prices gain on hopes of US stimulus

Brent traded at $56.30 a barrel in early trade, up 0.8% from $55.85 at the close yesterday, while WTI edged up to £53.43 from $53.02.

Oil prices have found support from incoming Biden administration as expectations grow that the new president will introduce a slew of new fiscal stimulus to get the world’s largest economy going again.

WTI will remain in focus later today, with the API weekly crude oil stocks numbers due out at 2130 GMT.

Start trading the volatility in oil prices today.

Gold traded 0.7% higher this morning at $1852 per ounce after ending yesterday’s session at $1840.

Start trading gold and other precious metals today.

Market-moving events in the economic calendar

The economic calendar is busy today, kicking off with the eurozone’s CPI numbers due at 1000 GMT. The Bank of England governor Andrew Bailey will make his speech at 1700 GMT.

Over the Atlantic, Canada’s CPI figures are scheduled to be released at 1330 GMT, ahead of the Bank of Canada’s monetary policy meeting and interest rate decision at 1500 GMT. The central bank will hold a press conference at 1615 GMT.

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

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