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February 10, 2021
Five Things - Europe
Bloomberg

Good morning. German restrictions, Twitter earnings, Trump impeachment latest. Here's what's moving markets.

Can't Relax

German Chancellor Angela Merkel, who recently proposed a gradual reopening of shops and hotels next month, will today hold talks with state premiers on an expected extension of coronavirus restrictions. "We cannot afford to relax," Berlin Mayor Michael Mueller said this week. While the infection rate in the euro area's largest economy has eased of late, Merkel's government has come under fire for its relatively slow vaccine rollout. Neighboring Austria is imposing internal border controls, too. Elsewhere, the U.K.'s immunization drive showed one dose of the Pfizer-BioNTech vaccine gave two-thirds protection against the coronavirus. Finally, a World Health Organization investigation in China found that Covid-19 most likely jumped to humans through an animal host or frozen wildlife, and said it's "extremely unlikely" it came from a laboratory leak, an idea that had been touted by former U.S. president Donald Trump.

Twitter Beats

Twitter shares rose in after-hours trading as the social network reported fourth-quarter revenue that topped estimates amid a firm holiday season for digital advertising. However, the platform added fewer new users than projected and warned that audience gains in 2021 could slow compared with last year's pandemic-fueled surge. Investors will need to wait for the next quarterly report to understand whether Trump's ban from the site has had an impact on business. Elsewhere in U.S. tech, Cisco Systems shares fell amid a lack of sales growth for the networking software and hardware giant, while ride-hailing firm Uber Technologies reports tonight.

Impeachment Progresses

The Senate affirmed the constitutional basis of Trump's second impeachment trial, clearing the way for arguments to begin on whether he incited an insurrection by inflaming the mob that stormed the U.S. Capitol last month. Six Republicans joined with Democrats in voting to continue to the trial, but that is far short of the 67 votes that would be required for a conviction. Still, Senate Minority Leader Mitch McConnell is signaling to fellow Republicans that the final vote on impeachment is matter of conscience and that senators who disputed the constitutionality of the trial could still vote to convict, Bloomberg reports. Trump, meanwhile, watched on from his private quarters at Mar-a-Lago in Florida, and wasn't happy with the performance of one of his lawyers.

Very, Very Short

European shares had their first down day of the month Tuesday, though futures are higher again this morning. In currencies, billionaire investor Stanley Druckenmiller says he has a "very, very short dollar" position versus peers in Asia, amid the region's success in controlling the virus. Focus could well be on the U.S. currency later as Federal Reserve Chair Jerome Powell speaks on an Economic Club of New York webinar and  U.S. inflation statistics are due to be published. Oil edged lower after seven sessions of gains and Bitcoin pulled back from a record.

Coming Up…

European Commission President Ursula von der Leyen will appear before European parliament amid recent criticism over issues like vaccines rollouts and the Irish border. In Italian politics, the director-general of the country's central bank is emerging as a possible candidate to take over as finance minister under premier-designate Mario Draghi. In data, U.K. gross domestic product numbers are expected to show Britain's recovery was all but halted in the fourth quarter by fresh lockdowns. Sweden is seen leaving interest rates as they are. Meanwhile, earnings in this region include shipping giant Maersk, lender ABN AMRO and engineering and steel group Thyssenkrupp.

What We've Been Reading

This is what's caught our eye over the past 24 hours. 

And finally, here's what Cormac Mullen is interested in this morning

With most eyes on longer-dated bond yields, thanks to upward pressure from the reflation trade, some may have missed that at the other end of the curve yields are quietly slipping ever lower. Two-year Treasury yields hit a record low this week as investors sought a short-term home for a growing pile of cash. In fact, that pile is expected to grow in the coming months, as the U.S. Treasury Department makes use of its own mammoth cash balance, with hundreds of billions of dollars of stimulus spending on the cards. As my colleague Alexandra Harris noted, a decline in the U.S. government's deposits adds cash to the financial system, which banks often funnel into short-term assets including Treasuries. Some strategists -- such as Citigroup's Matt King -- argue that this flow of liquidity could be an even bigger driver of market movements than central bank asset purchases. Others -- such as my colleague Stephen Spratt -- see no impact on broader liquidity. The Treasury department forecasts a drop in its cash balance to $500 billion by the end of June -- it stood at $1.6 trillion last week. That would be a serious wave of sustenance for other assets if it did manage to spill out of the short-term Treasuries market.

Cormac Mullen is a Cross-Asset reporter and editor for Bloomberg News in Tokyo. 

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