Boris is still battling

Is the old Boris back?

Boris back on the front foot in the Commons yesterday for Prime Minister’s Questions. Certainly a lot more than last week, where perhaps he was playing the part of someone more apologetic or remorseful for being caught in the act of lying to the house.?

Yesterday was different. Not only was he prepared to defend himself and his record in office, but he also went on the attack, criticizing the Opposition at virtually every opportunity.

Strategically, perhaps this was to give his Party a reminder of the Boris Johnson who won a landslide election for the Tories because he may well need all the support he can muster to survive the Downing Street investigations. Many believe that Sue Gray’s report will sink the Prime Minister.

We are still waiting for the report to be released. Keir Starmer reminded Boris to keep his promise and release the report exactly in the form delivered to him. A timely reminder when the currency of Boris's promises has significantly devalued of late.

There was a hope that the report would be ready yesterday and that has just rolled over to today. There may not have been any commitment over how quickly the report was to be released, so there is always a chance it could have been held back yesterday so Boris could get through one last PMQ before his grip on power gets a hammer blow.?

In the market, Sterling suffered from a strengthening dollar as the Fed outlook remained hawkish. That dropped to 1.3445 against the dollar but held up better against the EUR, open around 1.1965.?

Fed remains hawkish

The Fed meeting concluded yesterday. There was no action taken to tighten monetary policy, but Powell continued with the same hawkish tone from the two previous meetings.

Tapering the additional economic support will be concluded soon and this will allow the Fed to raise rates at their next meeting, scheduled for mid-March. That has accelerated their original timeline by about a month and was taken as a positive sign by the market.

In his press conference, Powell reiterated his determination to fight inflation for as long as it takes. He remains aware of the Fed’s twin targets around growth and employment.

Early signs suggest inflation may cross over from the supply side of the economy. Yesterday oil sector workers were offered a 1% pay increase for the coming year.?The U.S. is not used to seeing militancy from workers, but the current situation is likely to change that, at least in the short term. That offer was described as ridiculous by the steelworkers union, so there may be some tough negotiations ahead.

There is plenty of data on the calendar today.?Q4 GDP will be the most significant and that will be followed by weekly jobless claims and durable goods. GDP is expected to be a little over 5% for Q4, unlikely to be affected by Omicron. That is likely to figure in the Q1 data.?

The dollar index surged after the Fed meeting. We touched 96.55 and recorded the highest close of the year so far.

Eurozone support scheduled to end?

Speculation is growing that the level of support the ECB is pumping into the economy, via the Pandemic Emergency Purchase Programme, will be significantly reduced at the end of Q1 when the latest round of support comes to an end.

The IMF cut its growth predictions and the fight to keep a serious level of support remains. However, Inflation is expected to hit another record this month and pressure on the ECB to act is becoming too high to ignore. Inflation is forecast to peak at around 7% towards the end of Q1 and something's got to give.

Italy is facing a battle over who becomes the next President. The expectation that it was Mario Draghi’s to lose has been overstated, although he does remain in the race. He is the clear favourite with the people, but he does not have sufficient support amongst any of the diverse set of political views currently on display.?

With headwinds gathering, like an armed conflict in Ukraine, or Russia weaponising gas supply, the EUR may have finally begun its march towards long-term support at 1.10. Following the Fed meeting, the EUR was battered by the USD advance, dropping to 1.1220 on the open this morning.?