The world focuses on Washington


Good Morning, one event above all else will dominate the headlines this week, the inauguration of the 46th President of the United States, Joseph Robinette Biden Jnr.

With large numbers of the National Guard deployed in possibly the tightest security ever witnessed for the event, we hope that the authority’s precautions deter the feared violent protests.

Last week we got a glimpse of his plans for a substantial stimulus totalling nearly $2tln. How quickly the new President can pass this will be down to how accommodating the defeated Republicans chose to be. Whilst pleasing the markets initially, the proposed package’s size will necessitate an increase in treasury bond issuance to fund the plans. Treasury yields have started to reflect this fact and have been increasing recently. The risk-off sentiment is beginning to grow, and as it does so will the attraction of safe havens such as the dollar.

Politics are also starting to influence the euro’s direction with the continent looking suddenly less stable. Italy’s coalition conflict is now looking likely to end with a confidence vote in Prime Minister Giuseppe Conte, Mark Rutte’s government in The Netherlands has resigned and further North in Denmark an impeachment trial is likely. In Germany, the Christian Democratic Union party has chosen a successor to Angela Merkel, and Armin Laschet will now lead the party to the General Election in September. When combined, these individual factors are starting to spread a little uncertainty about the bloc’s unity.  Vying for headline space will be the continued advance of COVID-19 and the introduction of stricter lockdown measures, particularly in France, Italy and Germany and the slowness of the vaccination programme in Europe.


Sterling was the best performing G10 currency last week, not something that occurs too often. It has opened this morning easier against the dollar at $1.3570, but it is still trading strongly against the euro at €1.1235. For once, the UK looks relatively stable politically, and its vaccination rollout programme’s efficiency is helping sterling find buyers. The pound was also supported by Andrew Bailey, Governor of the Bank of England, all but dismissing the prospect of sub-zero interest rates despite his deputy  Tenreyro arguing that they were possible. In the coming week, we will get to see a snapshot of inflationary pressure, if any, when the Consumer Price Index is released on Wednesday. We will see how the consumer acted over the Christmas period when December’s Retail Sales are issued on Friday. Also, on Friday, Markit will release its preliminary figures for the Purchasing Manager’s Index. BoE Governor Andrew Bailey is giving a speech later today, and his Chief Economist Andy Haldane is speaking tomorrow.


Away from the pomp and ceremony of Wednesday’s inauguration more mundane problems will be occupying the financial markets this week. After a week of disappointing data that culminated with December’s Retail Sales dropping by more than expected and containing downward revisions for previous months, sentiment has become more risk-averse. The dollar may find buyers as a safe haven if Iran continues to test the new President’s resolve. Its a Bank Holiday in the US  today celebrating  Martin Luther King’s Birthday. This week’s critical data will again be the weekly jobless claims on Thursday, and we will also be watching out for the release of US housing data during the week.


Some political instability is creeping into Europe; consequently, the euro has been slipping and is now trading at 1.2075. Also encouraging selling pressure were the minutes from the previous ECB meeting in December, which highlighted concerns about a strong euro and its effect on inflation. The week ahead is a busy one for data and more importantly meetings. We start the week with Germany’s Consumer Price Index tomorrow and the ZEW Economic sentiment surveys. On Wednesday, the European Consumer Price Index is released as is the German Producer Price Index. The week closes out with the Markit Purchasing Managers Indices for the European constituent countries and the zone as an entity. It is also a big week politically starting today with the Eurogroup meeting. The European Central Bank meets on Thursday after which its President Christine Lagarde will give a press conference. There is also plenty to anticipate from the EU Leaders summit meeting on Wednesday when it is expected they will focus on the speeding up the vaccination roll out and implementing the recovery fund.


The Swedish Krona’s latest bull run has not escaped the hawkish eyes of Riksbank Governor Ingves. The Swedish Krona, which until recently has been on the long and winding road back to levels last seen in 2018 weakened spectacularly after the Riksbank suddenly announced that it intends to pay back foreign loans on behalf of the Swedish Debt Office over the next two years. They will do this by selling SEK 185bn and buying foreign reserves. The financial press immediately speculated about Central Bank fx intervention, but the Riksbank later denied that. Whilst it is impossible to know for sure what is going on behind that locked door of the Riksbank, the market’s verdict spoke for itself, and it appears as if the Riksbank will have to do some more convincing. This week contains no major data releases, and we will closely monitor the movements from a more technical perspective rather than macro.

The Norwegian Krone had a quiet, rangebound week against most G10 currencies, this week’s focus will be the Deposit Rate announcement from Norges Bank. Governor Olsen is not expected to do something drastic this early on in the year. We will follow the press conference closely on Thursday as he has warned and hinted previously that the market perhaps is not taking the possibility of a rate hike before 2022 into consideration.
Although it is not something the market expects will impact the DKKEUR peg, Denmark has its first impeachment trial in almost three decades which may have wider political implications for the country.