US Market Open: Lower start ahead of flash PMIs

• US markets are expected to open lower today, as investors prepare for the flash PMI numbers due out shortly.
• European markets are trading sharply lower at midday as PMIs showed the UK and Europe are on course for a double-dip recession as the latest lockdown rules start to bite.
• In forex, the pound has given back the recent gains booked against the euro and the dollar.
• In commodities, oil prices have continued to soften, with WTI in focus ahead of inventory and rig count data later.

US markets to open sharply lower

The S&P 500 is called to open down 0.7% today at 3826.3 from 3854.5 at yesterday’s close.

The Dow Jones is set to open down 0.7% at 30938.0 from 31168.0 at the end of play yesterday.

Start trading the opportunities with indices today.

Biden to bridge the gap to stimulus with new executive orders

President Joe Biden is expected to continue signing executive orders as he kicks-off a renewed effort to fight the coronavirus pandemic whilst his new $1.9 trillion stimulus bill goes through the political process.

The orders are expected to speed up the distribution of stimulus cheques for families that are struggling, and help kids that have been left hungry whilst schools remain closed.

Brian Deese, the director of the White House National Economic Council, said the orders would not act as a substitute for legislative relief but would act as a ‘critical lifeline’ for families in the meantime.

A White House statement suggested 8 million Americans did not get paid their initial cheques in March as they were supposed to and that it was hoping this would not happen again. As for food aid, the order is expected to grant around $100 of support to families with three or more children every two months.

Biden will also look to restore some worker’s protection rights that were scrapped by Donald Trump, such as collective bargaining power, and promote the idea of raising the minimum wage from just $7.25 an hour to $15.

Support for Biden’s stimulus plan to be tested during Yellen vote

The Senate Finance Committee will vote later today on whether Janet Yellen should be Treasury secretary. Yellen is thought to draw support from both Democrats and Republicans and has the experience needed to hold the job considering she was chair of the Federal Reserve for the four years to 2018.

However, the vote today is expected to reveal the level of resistance among Republicans, some of which are concerned about the impact that president Joe Biden’s $1.9 trillion stimulus plan could have on debt. Yellen has supported the stimulus and called on politicians to spend now and worry about debt later.

There are also concerns that Yellen will pave the way for more of Biden’s economic policies that don’t sit well with Republicans, such as raising taxes.

The committee vote will be held at 1000 local time (1500 GMT) and, depending on the result, it could allows the Senate to sign-off on Yellen’s confirmation before the end of the day.

European markets trading sharply lower

European markets were trading markedly lower at midday, driven by data that revealed the impact of the latest lockdown restrictions is having on the UK and European economies.  

The Euro STOXX Index traded 1.2% lower at midday at 3581.5 after ending yesterday at 3626.2.

France’s CAC 40 was down 1.2% at 5529.8 from 5596.0 at the last close.

Germany’s DAX was 1.1% lower at midday at 13786.0 from 13940.7 at the end of play yesterday.

Meanwhile, over the Channel, the FTSE 100 was down 1.0% at 6664.5 from its last closing price of 6733.1.

In today’s Top UK Stocks to Watch, Kainos continues to grow as it helps the NHS with its pandemic response, Mediclinic’s performance improves as elective surgeries start again, Computacenter bumps up its profit guidance, and GlaxoSmithKline gets US approval for a game-changing HIV treatment.

UK retail sales suffer worst slump for 24 years in 2020

UK retail sales suffered their largest annual fall in 2020 since 1996, as lockdown measures hammered the high street.

An easing of restrictions during the busy December period prompted analysts to forecast a 2.9% rise in sales during the final month of the year, but the latest figures from the Office for National Statistics said they edged up just 0.3%.

For 2020 as a whole, retail sales slumped 1.9% to book its worst performance in 24 years. Notably, online sales soared over 46% in the year as shopping shifted online, but not enough to offset the fact non-essential stores were closed for much of the year. Clothing retailers were among the worst hit with sales down by around a quarter, although there was an improvement during December.

UK PMI: Economy takes big hit during latest lockdown

UK business activity has plunged after the UK entered its latest national lockdown, with the services industry particularly hard-hit.

The flash composite PMI fell to 40.6 in January from 50.4 in December. A reading below 50 represents contraction while above 50 signals expansion. That was the steepest drop in activity since May and far worse than the 45.5 expected by markets.

IHS Markit, which released the PMI, said services had struggled once again during lockdown whilst manufacturing growth had almost stalled.

‘A steep slump in business activity in January puts the locked down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards,’ said Chris Williamson, the chief business economist at IHS Markit.

‘Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of COVID-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports,’ he added.

IHS Markit said optimism among businesses had ticked up from last month despite the tough start to the year, with companies increasingly optimistic about recovering this year as vaccines are rolled-out.

Eurozone PMI: European economy sees milder contraction

The eurozone economy has contracted at a steeper rate in the early part of the year,

The flash composite PMI fell to 47.5 in January from 47.5 in December. Like the UK, it was the services industry that drove the contraction with a reading of 45.0 – its lowest level in two months - compared to 46.4 in December. Manufacturing activity grew, albeit it a slightly slower rate, to 54.7 from 55.2 last month.

Notably, Germany was the standout performer as the economy continued to expand while France’s contraction steepened. Separately, Reuters reported that Germany’s economy minister Peter Altmaier also drastically cut the country’s GDP growth forecasts for this year down to just 3% from 4.4% previously to reflect the latest lockdown restrictions introduced late last year.

‘“A double-dip recession for the eurozone economy is looking increasingly inevitable as tighter COVID19 restrictions took a further toll on businesses in January. Output fell at an increased rate, led by worsening conditions in the service sector and a weakening of manufacturing growth to the lowest seen so far in the sector’s seven-month recovery,’ said Chris Williamson of IHS Markit.

ECB survey: economists expecting slower recovery in 2021

A survey conducted by the European Central Bank shows economists expect the eurozone to recover at a slower pace this year than a few months ago.

The survey suggested eurozone GDP could grow by 4.4% this year, down from expectations of 5.4% when the same survey was conducted in October. However, confidence is building that 2022 will be when the real lost ground will be made up, with economists expecting 3.7% growth next year compared to just 2.6% in the last survey.

Forex: Pound gives back recent gains

GBP/USD was trading 0.4% lower at 1.36731 from 1.37326 at the end of play on Thursday, when it hit its highest level since April 2018.

City Index analyst Fiona Cincotta has a technical look at GBP/USD after cable eases back following the weak retail sales update.

EUR/GBP was up 0.4% at 0.89015 from 0.88595 at the end of play yesterday, when it hit its lowest level since May.

Meanwhile, EUR/USD traded broadly flat at 1.21730 from 1.21636 at the last close.

Start trading the opportunities in the forex market today.

Commodities: Oil edges lower ahead of US data

Brent traded at $54.76 a barrel, down 2.1% from $55.96 at the end of play yesterday, while WTI followed lower to $51.83 from $53.01.

The American Petroleum Institute revealed earlier this week that US crude oil inventories increased by 2.6 million barrels in the week to January 15 – a starkly different result from the 1.2 million barrel decline expected by markets.

WTI will remain in focus today with the EIA gas storage change at 1500GMT and the crude oil stocks change to be released at 1600 GMT. The Baker Hughes US oil rig count, which provides an insight into drilling activity, follows at 1800 GMT.

Start trading the volatility in oil prices today.

Gold was trading lower at $1848 per ounce from $1870 at the close yesterday.

Start trading gold and other precious metals today.

Market-moving events in the economic calendar

The economic calendar quietens down this afternoon after a busy morning. Things kick off with Canada’s retail sales at 1330 GMT. Following the flood of PMI data released in Europe this morning, US PMI numbers are due to be released at 1445 GMT. There is also US existing home sales at 1500 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.