US Market Open: Biden inauguration to kickstart new era

• Joe Biden will become the president of the US today when he is sworn-in during his inauguration, starting a new era with new policies for markets to consider.
• European markets were struggling to find higher ground at midday, as coronavirus fears return as countries tighten their lockdown restrictions.
• In forex, cable edged higher after data showed UK inflation picked-up last month.
• In commodities, the anticipated introduction of a new US stimulus package has caused oil prices to rise on hopes that the world’s biggest economy will recover quicker.

US markets to open higher

The S&P 500 is called to open 0.3% higher at 3810.9 from 3801.1 at the end of play yesterday.

The Dow Jones is set to open 0.1% higher at 30974.0 after ending Tuesday at 30939.5.

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Biden inauguration: Markets prepare for a new era

Joe Biden will become the 46^th president of the US when he is inaugurated today, starting a new era and bringing an end to Donald Trump’s time in the White House. Biden will be sworn-in at noon local time (1700 GMT) and will be followed by running mate Kamala Harris, who will become the first woman to serve as vice-president.

Biden is expected to get to work right away, with reports that he is preparing to sign 15 executive orders on his first day in office. This will reverse many decisions made by Trump, such as re-joining the Paris climate accord, cancelling the permit for the Keystone XL oil pipeline and cutting off funding for the border wall with Mexico.

Beyond that, Biden’s biggest priority is handling the coronavirus pandemic that has killed over 400,000 Americans. The US has been ravaged by the virus worst than most and the economy has taken a battering. Biden intends to vaccinate 100 million Americans within the first 100 days in office and has put forward a $1.9 trillion fiscal stimulus package to get the economy going again.

While the executive orders will need no approval, the stimulus package and other policies will need to be given the green light by Congress. Although Democrats control both the House and the Senate, Biden is keen to strike a bipartisan tone with Republicans following the divisive nature of Trump’s last weeks in office.

Beyond the immediate concern of the pandemic, there are many Biden policies that will have major implications for businesses and markets. For example, the new president is expected to push for a higher minimum wage, tighter regulations for Big Tech, revive Obamacare and get businesses and the wealthiest individuals to pay more tax.

City Index analyst Joe Perry writes about what the economic, geopolitical and social implications could be of a Biden presidency.

European markets mixed at midday

The Euro STOXX Index traded broadly flat at midday at 3611.5 compared to 3611.1 at the close yesterday.

France’s CAC 40 was also flat at 5613.8 from 5613.5 at the end of play Tuesday.

Germany’s DAX was up 0.2% at midday at 13884.0 after closing yesterday at 13862.5.

Meanwhile, over the Channel, the FTSE 100 was down 0.4% at 6710.3 from 6736.3 at the end of the last trading session, partly because of a stronger pound.

In today’s Top UK Stocks to Watch, Burberry sales are knocked by lockdown, Pearson warns profits will fall by over 45%, Hochschild says it will significantly raise output this year, and Wetherspoon raises funds as pubs remain closed.

EC president says EU needs to work together on coronavirus response

The president of the European Commission, Ursala von der Leyen, has told member states that they need to work together on lockdown restrictions and the roll-out of vaccines while refraining from closing borders with one another.

The president fears that individual countries closing borders undermines the single market and free movement of people, claiming it is ‘not as effective as targeted measures’ and calling for a ‘common approach to test, trace, travel and borders’.

Netherlands adds curfew to national lockdown

The Netherlands said it will introduce a curfew as it tightens rules to stop the spread of coronavirus. People will be unable to leave home between 8.30pm and 4.30am without good cause. The country is already in a national lockdown with shops and schools closed and that will remain the case until February 9 – although expectations are building that it will be extended. Germany extended its lockdown until at least February 14 earlier this week.

BoE to focus on whether banks can support economy through pandemic

The Bank of England said it is adapting stress tests this year to focus on ensuring banks can continue to support the economy as it recovers from the pandemic.

Stress tests are conducted annually to test the strength of bank’s balance sheets under theoretical scenarios such as a recession, but last year’s tests were cancelled as the pandemic put banks in an unprecedented situation.

This year, tests will resume but not in the same manner as before. Banks will submit their own projections on how they could cope with a range of scenarios whilst ensuring they do not fall below the minimum capital levels, which will then be analysed by the BoE. This will also be integral in deciding how quickly banks can return to paying normal dividends. Banks were forbidden from making payouts during the pandemic but those rules were eased in December.

UK inflation jumps in December

UK inflation jumped in December, according to the latest CPI numbers out earlier today. The cost of goods in the UK rose 0.6% in December compared to the 0.3% increase seen in November, the Office for National Statistics (ONS) said.

That beat expectations for a 0.5% rise and the improvement in inflation will be welcomed by the Bank of England, which has a target for inflation to run at 2%. The main question now is whether this is the start of higher inflation going forward.

The largest increases in price were witnessed in recreational and cultural activities, whilst the cost of transport and clothing also rose. At the other end, the price of food and non-alcoholic drinks slumped.

Forex: Cable climbs following UK inflation data

GBP/USD was trading at 1.36783 at midday, up 0.3% from 1.36298 at the close yesterday – strengthening following the release of UK CPI numbers that showed a pick-up in inflation.

EUR/USD traded at 1.21131 at midday, slightly lower than 1.21286 at the last close.

The dollar’s weakness also comes after Janet Yellen, Biden’s new Treasury secretary, 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’.

Meanwhile, EUR/GBP was down 0.5% at midday at 0.88555 after ending yesterday at 0.88983.

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Commodities: Oil prices find support from US stimulus plans

Brent traded at $56.32 a barrel at midday, up 0.8% from $55.85 at the close yesterday, while WTI had surged 1.1% higher to $53.61 from $53.02.

Oil prices have found support from the 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. Janet Yellen, Biden’s pick for Treasury secretary, called on politicians yesterday to ‘act big’ by stimulating the economy as much as is needed without worrying too much about the debt piling up.

WTI will remain in focus later today, with the API weekly crude oil stocks numbers due out at 2130 GMT. City Index analyst Fiona Cincotta has a technical look at WTI and where the price could be headed next.

Start trading the volatility in oil prices today.

Gold was trading at $1849 per ounce at midday, rising 0.5% from $1840 yesterday.

Start trading gold and other precious metals today.

Market-moving events in the economic calendar

The economic calendar today sees Canada’s CPI figures 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.

The Bank of England governor Andrew Bailey will make his speech at 1700 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.