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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil and bitcoin rise, but US small business optimism slides – as it happened

Platforms in Esbjerg offshore oil harbor, Denmark.
Platforms in Esbjerg offshore oil harbor, Denmark. Photograph: Frank Bach/Alamy Stock Photo

Closing summary

Right, time to wrap up.

Oil has hit its highest level since the pandemic began, with Brent crude trading at $56.50 per barrel. Hopes of an economic revival this year, and Saudi Arabia’s pledge to cut output in February and March, boosted prices.

Bitcoin recovered from its tumble on Monday, and is currently up around 2.7% at $34,823. That’s around 17% below last week’s peak, but still up a fifth so far this year.

Bitcoin’s volatility, and claims it could succeed gold as a store of value, could lead to more regulatory pressures, one analyst warned.

Some unlucky investors, meanwhile, remain locked out their wallets after losing crucial passwords.

The pound also rallied, up over one cent at $1.364, after the Bank of England’s governor dampened talk of negative interest rates. Andrew Bailey said there were ‘lots of issues’ around cutting borrowing costs below zero.

Bailey also warned that the UK economy is going through a very difficult period, as the Covid-19 lockdown continues to hit growth.

In America, small business confidence took a knock, with bosses citing the Covid-19 crisis and political uncertainty.

Job vacancies also declined, highlighting that the labor market is under pressure.

China’s stock market continued to race ahead, hitting its highest level in 13 years.

Shares in London fell back, with the stronger pound weighing on major multinationals.

But DIY chain Kingfisher, wargaming group Games Workshop and online retailer The Hut Group have all had good pandemics:

Goodnight. GW

A game of Warhammer, a turn based strategy game.

Wargaming model group Games Workshop has cemented its position as a lockdown winner today.

The fantasy figurine maker grew its profits by over 50% in the six months to 29 November 2020, with the pandemic driving demand for its Warhammer offering.

My colleague Zoe Wood explains:

For the past year Britons have been told to stay home and save lives but while tabletop gamers have been stuck at home they have been busy fighting bloodthirsty wars from the safety of their bedroom or garden shed.

Sales at Games Workshop, which sells fantasy miniatures and toy soldiers, soared by a quarter at the end of last year as fans escaped the grim reality of 2020 by losing themselves in its games, including its bestselling space fantasy game Warhammer 40,000 – or 40K as it is usually known.

Given the human misery created by the pandemic the appeal of “the grim darkness of the 41st millennium” where “there is only war” can be hard to see. But Warhammer counts its fans in millions. Its Warhammer community webpage has 4.7 million users, its YouTube page has 400,000 followers and there are 280,000 on Instagram.

Nonetheless Kevin Rountree, Games Workshop’s chief executive said there had been a “step change” in demand over recent months for the figures and weaponry players used to build their armies. The company sold nearly £187m of games, figurines and paints in the six months to the end of November, up £38m on the year before, and profits were up more than 50% to £92m. Rountree described it as a “cracking performance”.

Games Workshop’s shares actually fell today, though, down 6.7% at £108.50.

But they’ve enjoyed a remarkable run over the last five years, given they were worth just £5 in 2016. They’ve doubled since April, after tumbling during the market crash this spring.

Games Workshop’s share price
Games Workshop’s share price over the last five years Photograph: Refinitiv

Here’s more reaction to oil’s rally to 11-month highs today.

SP Angel Oil & Gas:

  • Clearly, US shale drillers will be more optimistic on the outlook of 2021 after an unprecedented year in 2020
  • Over the past six months, excess US crude oil and product inventories have declined from their surplus at the start of the summer of 2020
  • Petroleum inventories have been slowly falling and are now at just single-digit-percent surpluses over five-year averages, compared to 20-30% excess over five-year seasonal averages last summer
  • Demand for gasoline and other petroleum products in the US has recovered from multi-year lows in April and May, but the last leg of the recovery to pre-pandemic levels proves to be the most difficult and seems to have stalled at the end of 2020.

Craig Erlam of OANDA:

Oil’s relentless rally is continuing, with crude prices up roughly 1.5% today, making fresh highs since the pandemic plunge. The rally will run into stronger resistance soon enough but a softer dollar is giving it an additional lift todaxy.

I do wonder how much longer this has to run given the mounting near-term risks. Granted, OPEC+ has alleviated some of the downside risks from the lockdowns - which are shaping up to be stricter and longer - but we may see some profit taking as Brent closes in on $60.

Gaurav Sharma of Citi:

Updated

British spacecraft could travel to Mars in half the time it now takes by using nuclear propulsion engines built by Rolls-Royce under a new deal with the UK Space Agency.

The aerospace company hopes nuclear-powered engines could help astronauts make it to Mars in three to four months, twice as fast as the most powerful chemical engines, and unlock deeper space exploration in the decades to come.

The partnership between Rolls-Royce and the UK Space Agency will bring together planetary scientists to explore how nuclear energy could be used to “revolutionise space travel”, according to the government...

More here:

Oil is trading at its highest level in 11 months tonight, with Brent crude holding firm around $56.55 per barrel, up 1.5% today.

Saudi Arabia’s plan to cut output in February and March is calming concerns that the ongoing pandemic will hurt demand, with lockdown restrictions likely to last many more weeks.

The Brent crude oil price over the last year
The Brent crude oil price over the last year Photograph: Refinitiv

Chris Beauchamp, chief market analyst at IG, says traders expect oil demand to rebound as the global economy reopens later this year.

One rally that shows no sign of abating is that of crude oil, which has pushed to a new eleven-month high. Here at least the rationale for further gains seems more solid, given the long-term improvement expected in demand and the tight control exercised on current supply levels.

The fact that oil prices have managed to weather the bounce in the US dollar with few losses points towards continued strong buying from institutional investors, confident that demand will rebound as 2021 goes on.

FTSE 100 closes lower

Britain’s stock market has closed lower for the second day running, despite the rising oil price lifting energy companies.

The FTSE 100 index has ended the day down 44 points or 0.65% at 6754.

Multinational stocks did the damage, due to the impact of the stronger pound on their overseas earnings. Pharmaceuticals group Hikma (-3.5%), specialist chemicals firm Croda (-3%) were among the fallers.

But BP and Royal Dutch Shell gained around 2%, helped by crude prices hitting their highest level since February today.

Airline group IAG (+3.3%) and hotel chains Intercontinental (+2.8%) and Whitbread (+2.2%) also rallied.

Other European markets had a quieter day, with the German DAX flat and France’s CAC dipping 0.2%.

But after last week’s surge, the FTSE 100 is still up 4.5% this year - with the Europe-wide Stoxx 600 up 2.4%.

A John Lewis store in the Westfield Shopping Centre in Stratford, London
A John Lewis store in the Westfield Shopping Centre in Stratford, London Photograph: John Walton/PA

Back in the UK, the John Lewis Partnership has suspended its click and collect services at its department stores, in an attempt to reduce non-essential travel and combat the spread of Covid-19.

Its Waitrose supermarket is also now insisting that all customers must wear a face covering (unless medically exempt or under the required age).

This new approach will be rolled-out across all stores over the next few days, as the NHS comes under increasingly severe strain with daily cases around record levels.

Marshals will be positioned at the entrances of all Waitrose supermarkets, equipped with disposable masks available for customers who do not have their own. Anyone who won’t wear one will be denied admission.

Other supermarkets, including Tesco, Sainsbury’s and Morrisons, have also strengthened their policies on masks this week.

Updated

US job vacancies drop

Job vacancies in the US have dropped, in another sign that the economy faltered last year.

There were 6.527m job openings at the end of November, the US Bureau of Labor Statistics reports, down from 6,632 in October.

That’s also a decline on a year ago, when there were 6.793m vacancies.

With the number of new jobs falling in December, this JOLTS report highlights the economic damage caused by the escalating pandemic, which has also killed 376,000 Americans so far.

The JOLTS report also shows that layoffs and discharges rose during November, as firms were forced to cut staff due to Covid-19 restrictions.

Here’s some expert reaction, from Heidi Shierholz of the thinktank Economic Policy.

..Daniel Zhao of Glassdoor...

..and Nick Bunker of Indeed.com.

Bitcoin is dipping again, and is now trading around $33,200 -- 2% lower than last night’s US close, but still above the lows seen yesterday.

The New York Stock Exchange.
The New York Stock Exchange. Photograph: Seth Wenig/AP

Wall Street has opened cautiously, with the Dow Jones industrial average dipping by 62 points or 0.2% to 30,945 in early trading.

The broader S&P 500 index is also down 0.2%, while the tech-focused Nasdaq is flat.

Investors are juggling the threat of more violent clashes in the US, the prospect of more stimulus measures once Joe Biden is sworn in, and the possibility that a stronger recovery means the US Federal Reserve winds back its own ultraloose policy.

Mark Haefele, chief investment officer at UBS Global Wealth Management, says vaccine rollouts should underpin the recovery:

“While near-term fluctuations are likely, we think the greenback’s downtrend should remain intact as long as global recovery prospects stay in focus.

We expect further COVID-19 vaccine rollouts to support an economic and earnings rebound that should see the global economy expand by more than 6% this year.”

Missing out on an asset rally can be annoying. But nowhere near as gut-wrenching as taking part, and then losing the money....because you’re forgotten a password.

That’s the situation facing some early bitcoin holders who can’t unlock the digital wallets, reports the New York Times today, because they’ve lost or forgotten the private key needed to access it.

Here’s a flavour:

Bitcoin owners who are locked out of their wallets speak of endless days and nights of frustration as they have tried to access their fortunes. Many have owned the coins since Bitcoin’s early days a decade ago, when no one had confidence that the tokens would be worth anything.

“Through the years I would say I have spent hundreds of hours trying to get back into these wallets,” said Brad Yasar, an entrepreneur in Los Angeles who has a few desktop computers that contain thousands of Bitcoin he created, or mined, during the early days of the technology. While those Bitcoin are now worth hundreds of millions of dollars, he lost his passwords many years ago and has put the hard drives containing them in vacuum-sealed bags, out of sight.

Back in 2013, we covered the early bitcoin miner who accidentally threw away a hard drive holding 7,500 bitcoins, created before prices took off.

That drive, buried in a landfill site near Newport, Wales, was then worth over £4m. At today’s prices? Around £180m.....

Full story: Lockdown leading to 'very difficult period' for UK economy

Here’s our news story on BoE governor Andrew Bailey’s concerns:

The Bank of England governor, Andrew Bailey, has said the economy is in a “very difficult period” due the latest Covid-19 lockdown and it would probably delay the recovery.

In comments on Tuesday that echoed warnings from the chancellor, Rishi Sunak, a day earlier that the economy “is going to get worse before it gets better”, Bailey said it would bounce back, but only after the lockdown had ended and concerns about the spread of the virus had receded.

“[We’re] in a very difficult period at the moment and there’s no question that it’s going to delay, probably, the trajectory,” he said....

Deutsche Bank became the latest large company to cut ties with Donald Trump, with the firm that has propped up the Trump Organization for two decades reportedly announcing it would no longer do business with the disgraced president.

The German bank’s move – reported by the New York Times – follows Wednesday’s deadly attack on the US Capitol building by a mob of Trump supporters. The number of corporations disassociating themselves from Trump is now turning into an avalanche.

Deutsche Bank has been Trump’s most important lender. The Trump Organization, fronted by his two older sons, owes the bank about $340m in outstanding loans. After a series of bankruptcies in the 1990s, it was the only bank willing to give Trump money....

More here:

Although Bitcoin is still looking much less volatile than yesterday, it is losing some of today’s bounce.

It’s now trading around $35,000, a gain of $1,100 (or 3.3%) since last night, but still around 16% below last Friday’s record high.

It’s still up around 21% for the year, though, amid rising interest from some institutional investors.

Bitcoin
Bitcoin Photograph: Refinitiv

Matthew Cady, Investment Strategist at Brooks Macdonald, suggests cryptocurrencies could become the victims of their own success:

Should cryptocurrencies succeed in becoming widespread in use, central banks, governments, and financial regulators are unlikely to sit by as they displace the role of existing fiat currencies such as Sterling, Euros or US Dollars. A more likely scenario is that policy makers could introduce regulation which might at best heavily regulate their use.

With monetary policy continuing to play such a critical role in economies and markets, especially so during the Covid-19 pandemic, policy makers are unlikely to give up such an important macroeconomic lever.

Bitcoin has seen a significant amount of interest, perhaps matched only by the level of price volatility, even in recent days. As a new technology, the financial regulatory response is evolving all the time, and regulators are likely to continue to fine-tune the rules around what is and what isn’t allowed. As the use of cryptocurrencies is likely to continue to grow, it will likely force policy makers to continue to clarify how it can be used and traded.

At the end of the day, the process of attempting to weigh up the pros and cons of Bitcoin and other cryptocurrencies is no different an exercise to any other asset class, but the latest risks outlined by regulators are important to keep in mind.

The slump in US small business confidence last month partly reflects the fact that many small business owners are solid Republicans, analysts say.

Here’s George Pearkes, macro strategist at Bespoke Investment Group:

But while they may not have voted for Joe Biden, those firms are likely to benefit if the Democrats roll out a multi-trillion dollar stimulus package that pulls unemployment down faster.

Edward Moya of OANDA explains:

The NFIB Small Business Optimism Index confirmed the December labor market weakness seen in last week’s nonfarm payroll report. The small business index plunged as expected given President Trump’s defeat (small businesses loved Trump) and all the stimulus uncertainty due to Georgia Senate runoff races, and rising lockdown risks that remained in December.

Businesses had no idea we were going to see a Blue Wave and that vaccines targets would be boosted. Wall Street is looking beyond the NFIB’s headline index drop to 95.9 which brought it below the historical average of 98. Small businesses are expected to see more relief under a Biden administration and that should help the index rebound next month.

Back in the City, the FTSE 100 has dipped deeper into the red as the pound rallies.

The blue-chip Footsie index has now lost 45 points, or 0.65%, to 6752, away from the pandemic highs seen last week.

Multinationals are suffering from the strength of sterling. It’s still up three-quarters of a cent at nearly $1.36 following BoE governor Andrew Bailey’s comments about the ‘issues’ surrounding negative interest rates.

Fallers include pharmaceuticals group Hikma (-3.4%), consumer goods makers Reckitt Benckiser (-2.8%) and Unilever (-2.2%), and fluid engineering firm Spirax-Sarco (-2.1%).

US small business confidence slides

Over in the US, business confidence among small businesses has fallen sharply to a seven-month low.

The National Federation of Independent Business reports that its small business optimism index slid to 95.9 for December, down from 101.4 in November.

That’s a sharp fall, to below the long-term average (98.0), and the lowest since May.

Small businesses reported that they are more concerned about their sales outlook and business conditions this year, as the pandemic hits the US economy.

NFIB Chief Economist Bill Dunkelberg says:

“Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”

Updated

Broadbent: unemployment to rise as furlough schemes end

BoE deputy governor Ben Broadbent predicts that unemployment will rise as the UK government’s job protection schemes end this year.

During his speech, he also flags up that the economy will shrink this quarter, as well as in the last three months of 2020 - putting the UK back into an official recession:

The lockdowns mean that, on a quarterly basis, GDP is likely to have fallen in the fourth quarter of 2020 and to do so again in 2021 Q1. This will no doubt prompt headlines about a “double-dip recession”.

But this is quite unlike any normal economic cycle. Its size, shape and speed are all highly unusual. As far as medium-term inflation is concerned, what matters more than these gyrations in output per se – very large though they are – are developments over time in the labour market. The rate of unemployment is the best single measure we have of economic slack. It also affects households’ confidence about their income and is therefore correlated with rates of saving.

And it’s because, unfortunately, we expect unemployment to rise once the furlough schemes are wound down (the MPC’s central forecast in November was for a peak rate of almost 8%, despite a sharp projected recovery in output as health risks fade) that the appropriate response has been to ease policy significantly.

Reminder: BoE governor Andrew Bailey warned earlier today that the true unemployment figure is probably 6.5%, not the official rate of 4.9%, with the furlough scheme keeping many people in their jobs.

UK consumers’ willingness to switch spending from ‘risky’ to ‘less-risky’ activities has helped to cushion some of the economic impact of Covid-19, says Bank of England deputy governor Ben Broadbent.

In a speech on Covid-19’s impact on consumer spending, Broadbent outlines how some of the money that would have been spent on restaurant meals, pub outings trips to sporting events was redirected.

That money often went towards online shopping, takeaways, and products such as audio-visual kit for the home -- especially if it’s relatively easy to substitute old consumption with new.

But conversely, households are more likely to delay spending rather than switch expenditure if they think the lockdown disruption is only temporary, Broadbent adds.

BoE speech on consumer spending in the pandemic

Obviously we know that spending patterns were radically altered this year (as Kingfisher’s strong sales figures showed this morning). Broadbent’s analysis is that this divergence means there was less of a hit to inflation than one might think, and that big shifts in demand can push up costs (as the economy can’t instantly reshape itself).

He also flags up that the furlough scheme shielded household income from the drop in national income seen in the first half of last year.

Spending by today’s consumers has in part been sustained and funded by tomorrow’s taxpayers.

Ben Broadbent speech on consumer spending in the pandemic

Here’s Broadbent’s conclusion:

The pandemic, and the waves of the restrictions that have accompanied it, have had highly selective effects. They’ve hit some areas of spending much harder than others.

The decline in aggregate consumer spending would almost certainly have been more protracted and more widespread – affecting not just activities that involve infection risk but those that do not – but for the furlough schemes. These have helped shield household incomes from the big drop in national income last year.

But that’s not the only thing going on. Spending on some of these “non-risky” things have actually risen faster than incomes – in some cases faster than they have for many years. So it looks as though consumers used some of the money they would have spent on riskier activities – going to restaurants and so forth – to buy other things instead.

This makes sense. A pound less spent on one thing needn’t mean a pound less in total. Indeed under some (admittedly extreme) conditions you’d expect substitution of this sort to be one-for-one. If people are entirely indifferent between different sorts of consumption – if they’re just as happy with “non-risky” as “risky” stuff – aggregate spending wouldn’t fall at all (for given income). What they saved on one would be spent in its entirety on the other. The same is true if a rise in infection rates is expected to be permanent. If the future looks exactly like the present there’s no reason for saving – or therefore total consumption – to change.

These conditions are obviously unrealistic. Some things are good substitutes for risky activities during the pandemic. Perhaps it’s not much harder to buy things online than in a shop. At a stretch, watching a film on a screen at home can replace a trip to the cinema. But going out with family or friends to a pub or a restaurant, listening to live music or watching a play – for many of the things we’ve been denied for much of the past year, there is no good proxy. As for the dynamics of the pandemic, one thing they’re not is permanent or even slow-moving. Infection rates went up very rapidly in the spring and, once lockdown was in place, they fell almost as rapidly in the early summer. With the promise of looser restrictions as that happened, it would make sense for people to hold off on some spending until the day itself arrived.

Nevertheless, it’s clear that a fair degree of expenditure switching took place: some areas of consumption fared unusually well last year, even as others declined extremely sharply. Because it’s hard for economic resources to respond to large and rapid shifts in demand this may have softened somewhat the immediate impact of the downturn, enormous as it was, on inflation.

Updated

Oil’s rally is being driven by Saudi Arabia’s pledge last week to cut its crude output in February and March.

This production cut pledge is protecting prices during the ongoing travel restrictions and lockdowns, which are likely to weigh on demand.

Eugen Weinberg of Commerzbank says:

Saudi Arabia in particular is ensuring through its additional voluntary production cuts that the market is undersupplied if anything.

Oil hits highest since February

Oil is strengthening further, with Brent crude now up 1.5% at $56.50 per barrel, its highest level since last February.

Bitcoin’s holding most of its earlier gains, too, up 5.8% today at around $35,900.

The pound’s strength is dragging on multinationals in London, pulling the FTSE 100 down by 22 points or 0.3%, to 6775.

Royal Mail reveals 28 areas where Covid has limited deliveries

Royal Mail has provided clear evidence that of the economic disruption caused by the pandemic.

It say 28 areas across the UK are no longer receiving regular post because many staff have contracted coronavirus or are self-isolating.

Royal Mail said:

“Despite our best efforts and significant investment in extra resource, some customers may experience slightly longer delivery timescales than our usual service standards.

“This is due to the exceptionally high volumes we are seeing, exacerbated by the coronavirus-related measures we have put in place in local mail centres and delivery offices to keep our people and customers safe. In such cases, we always work hard to get back to providing our usual level of service as quickly as we can.”

Here’s the full story:

BoE governor: lots of issues with negative interest rates

Andrew Bailey also struck a cautious tone on the question of whether to cut UK interest rates below zero (they’ve currently just 0.1%).

The BoE governor told the Scottish Chambers of Commerce that negative rates would create complications for the banking sector, and erode their ability to make a return.

He says (via Reuters again):

“In simple economics and maths terms, there is nothing to stop it at all.

“However there are a lot of issues with it.”

This has helped to lift the pound, which is up three-quarters of a cent at $1.359.

Yesterday, BoE policymaker Silvana Tenreyro argued that cutting the UK’s official interest rate below zero would be good for growth and could be done without crippling commercial banks.

Bank of England governor: UK economy in a very difficult period

The UK’s top central banker has warned that the UK economy is suffering a ‘very difficult period’.

Andrew Bailey also told the Scottish Chambers of Commerce that the latest Covid-19 restrictions will probably delay the recovery.

Reuters has the details:

Bank of England Governor Andrew Bailey said on Tuesday that the recent resurgence of the COVID-19 pandemic had left Britain’s economy in a very difficult period that will delay its eventual recovery.

“(We’re) in a very difficult period at the moment and there’s no question that it’s going to delay, probably, the trajectory,” Bailey said in an online speech to the Scottish Chambers of Commerce.

However, he added that the basic shape of the recovery was likely to reflect the trajectory that the BoE outlined in a set of forecasts in November.

Bailey said he no longer thought that Britain’s unemployment rate would peak at around 7-8%, as the BoE forecast two months ago, because the government had extended its job protection scheme.

But the unemployment rate was probably still higher than the latest official estimate of 4.9% he said.

“Our best guess nationwide is probably it’s around 6.5%,” Bailey said.

He added that economic activity during the first quarter would be depressed until COVID-19 vaccines are widespread enough to allow a lifting of some of the lockdown restrictions.

Updated

A B&Q store in Slough, Berkshire.
A B&Q store in Slough, Berkshire. Photograph: Maureen McLean/REX/Shutterstock

DIY chain Kingfisher is topping the FTSE 100 risers, after racking up strong sales growth during the pandemic.

The B&Q owner told the City that like-for-like sales in the current quarter (from November 1st to January 9th) are up 16.9% year-on-year, as people continues to improve their homes during the lockdown.

That’s a slight slowdown on the 17.4% growth achieved in the three months to 31 October, but still solid, reflecting the strong demand since DIY stores began to reopen in April.

E-commerce sales have grown by over 150% in the current quarter, with click-and-collect services remaining popular.

Kingfisher added that it is ‘comfortable with the top end of the range’ of profit forecasts for this financial year, which helped to lift shares by 3% this morning.

Thierry Garnier, Chief Executive Officer, says:

“The safety of our customers and teams remains our first priority while we fulfil the essential needs of our customers. We will continue to support our colleagues during these most difficult times, and I want to express my sincere appreciation for all our teams as they continue to operate in such a challenging environment.

While the strength of our Q4 trading, to date, is reassuring, uncertainty over COVID-19 and the impact of lockdown restrictions in most of our markets continue to limit our visibility. Longer term, we are confident that the strategic and operational actions we are taking are building a strong foundation for sustainable long-term growth. We also believe that the renewed focus on homes is supportive for our markets.

Updated

China's stock market hits 13-year high

The night view of the Lujiazui area of Pudong, Shanghai.
The night view of the Lujiazui area of Pudong, Shanghai. Photograph: Xinhua/REX/Shutterstock

China’s stock market has just closed at its highest level since 2008.

The CSI 300 stock index rallied 2.85% today to close at 5,596 points, a new 13-year high, as China’s economy continues to recovery from the Covid-19 pandemic.

Financial stocks led the rally, as investors shrugged off concerns that valuations might now be too steep, and the biggest daily increase in virus cases in five months.

China’s CSI 300
China’s CSI 300 Photograph: Refinitiv

Authorities have imposed new lockdown in the Beijing area this week, after 103 new cases were reported yesterday (and another 55 today).

Our Covid-19 liveblog has more details:

Authorities in China introduced new Covid-19 curbs in areas surrounding Beijing on Tuesday, putting 4.9 million residents under lockdown as new infections raised worries about a second wave in a nation that has mostly contained the disease, Reuters reports.

The city of Langfang in Hebei on Tuesday said residents will be put under home quarantine for seven days and be subject to mass Covid-10 testing in the latest attempt to curb the spread of the coronavirus.

Gaocheng district in Shijiazhuang, Hebei’s capital which has been hardest-hit in the latest surge in infections, is gathering more than 20,000 people living in 12 remote villages into centralised quarantine as part of the city’s Covid-19 control, state media China News Service reported late Monday.

Paul Donovan of UBS Wealth Management says:

The action reminds us that it is fear of the virus that has the economic consequences—although in this case, the action is probably too small scale to have a visible impact on data in an economy the size of China.

European markets open higher

Europe’s stock exchanges are open, and the main indices are nudging higher.

The Europe-wide Stoxx 600 has risen 0.3%, led by gains on the German DAX (+0.36%) and France’s CAC (+0.25%).

In London, the FTSE 100 is flat, though, at around 6,800 points.

European stock markets, early trading, 12 January 2020

Richard Hunter, Head of Markets at interactive investor, says that anxiety about US politics weighed on the markets yesterday, helping the dollar end its recent falls.

The US dollar has had a strong few days which would normally underline its status as a haven currency, but its inverse relationship with the oil price has temporarily broken as black gold’s strong start to the year also continued given the intended supply-side restrictions.

Yet optimism surrounding the vaccine rollout remains, and with the new President expected to unveil a significant boost to spending in the coming weeks, sentiment is generally positive. The impending fourth quarter reporting season is likely to highlight those pockets of the economy which are in particular distress, which would add further fuel to the stimulus fire.

In the UK, the arguably important psychological level of 7000 for the FTSE100 remains out of reach for now, as the index has faltered slightly after a sparkling start to the year. Even so, the index is still ahead by 5% overall in the first few days of trading this year, although the wider concerns being felt by many economies as another lockdown bites have taken some of the shine off sentiment.

By the same token, opportunities continue to arise from the present situation.

Chris Weston, analyst at brokerage Pepperstone, wonders whether bitcoin’s slump yesterday was caused by a major holder (or whale, in the jargon) cutting their position:

Bitcoin and the crypto space more broadly have been slammed, but you wonder how much of this was down to someone getting out of a position – the whales will tell you when they’re getting in, but when they’re reducing then its radio silence and this makes sense.

Is this the flush out that needed to play out?

Research late last year showed that about 2% of the bitcoin accounts controlled around 95% of holdings, a remarkable concentration. (Bloomberg has more details here).

Cyptocurrencies are rebounding from Monday’s rout:

Saxo Bank analysts write:

Crypto assets stabilized and bounced back after Bitcoin sold off nearly all the way down to $30,000, a correction from the top late last week of over 25%. Ethereum suffered a sell-off of similar magnitude, but has already retraced more than half of the lost territory as of this writing.

Some are linking the recent more frequent mention of “tapering” of Fed QE purchases as aimed squarely at speculative phenomena like the meteoric rise in Bitcoin and other crypto assets as well as Tesla stock.

Introduction: Markets stabilise after Monday's wobble

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After a wobbly day start to the week, the markets are looking a little calmer today.

Investors continue to fret about the Covid-19 pandemic, and the possibility that the US central bank scales back its stimulus programme faster than previously expected, should Joe Biden’s multi-trillion dollar stimulus package do the business.

But hopes of an economic recovery as vaccines are rolled out are also supporting markets, although the World Health Authority has cautioned that we don’t get herd immunity this year.

Oil, the traditional bellwether of economic hopes, is rising today after a pullback on Monday. Brent crude has gained almost 1% to $56.12 per barrel, back towards last week’s 10-month highs.

With Goldman Sachs forecasting prices could hit $65 per barrel by this summer, crude prices could keep rising as Saudi Arabia cuts output and the Democrats push through a new stimulus programme.

As Stephen Innes of Axi puts it:

Oil prices are gingerly veering back on the vaccinated, and hyper-stimulus path of least resistance as structural catalysts of vaccine distribution and activity normalization remains intact. Oil is not going to be an asset class that sits still.

Speaking of volatile assets.... bitcoin has rebounded from a juddering selloff yesterday.

After plunging over a fifth to just above $30,000 on Monday, the cryptocurrency has now recovered to around $36,500 today -- heading back towards the near-$42,000 record hit on Friday.

Monday’s slump, though, highlighted why regulators are concerned about the crypto market, with Britain’s FCA warning that investors could be wiped out in shady ‘get-rich-quick’ schemes.

Jeffrey Halley, analyst at OANDA, writes that yesterday’s was a ‘harsh lesson’ about the crypto market:

Equities, precious metals and energy all beat a gentle retreat as investors used concerns about Covid-19 and US yields to book some profits and take some risk off the table. Bitcoin fell 20% at one stage overnight, as a harsh lesson in the difference between tradeable versus investible assets was dished out.

I noted that some “institutional investors” called it a correction after its recent galactic speculative rally with some bemusement. It seems that the Emperor’s New Clothes syndrome is alive and well in 2021.

The agenda

  • 10am GMT: Bank of England deputy governor Ben Broadbent speech: Covid and the composition of spending
  • 3pm GMT: US JOLTS survey of vacancies in November
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