European Market Open How will variants impact vaccination programmes

• Questions are being asked about the effectiveness of vaccines against new variants of coronavirus, as one study suggests the AstraZeneca jab struggles to protect against the South African mutation.
• UK considers introducing online sales tax to target internet retailers.
• In Europe, UK exports to the EU have plunged since Brexit, while Mario Draghi continues his push to form a new Italian government.
• In commodities, oil prices continue to find higher ground as markets bet on an economic recovery this year and support from central banks and governments in the meantime.

FTSE 100 to open higher

The FTSE 100 is set to open 0.5% higher this morning at 6533.5 after ending last week at 6504.2.

European markets to follow as DAX eyes fresh high

The Euro STOXX Index is called to open 0.6% higher today at 3682.5 from 3660.0 at the end of last week.

France’s CAC 40 is set to open 0.6% higher at 5693.1 from 5659.3 when markets closed on Friday.

Germany’s DAX is called to open 0.6% higher at 14165.0 – a new all-time high - from 14080.1 at the end of play last week.

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Is the AstraZeneca vaccine effective against the South African variant?

South Africa has stopped rolling-out the AstraZeneca vaccine after a study of around 2,000 people found the jab offered ‘minimal protection’ against the new variant, prompting concerns about its effectiveness around the world.

The country has received 1 million doses of the vaccine and was set to start giving people jabs this week. The study has not yet been peer reviewed, and the government is waiting for further advice before using the AstraZeneca vaccine. In the meantime, jabs from Johnson & Johnson and Pfizer will be used once they are delivered over the coming weeks.

‘Unfortunately, the AstraZeneca vaccine does not work against mild and moderate illness,’ said Shabir Madhi, who led the study at the University of Witwatersrand.

The UK’s vaccine minister Nadhim Zahawi responded yesterday by writing in the Daily Telegraph, stating that the AstraZeneca jab appeared to work against the variants that are most dominate in the UK at present, adding that manufacturers were working on adjusting vaccines to ensure they protect against new variants.

‘While it is right and necessary to prepare for the deployment of an updated vaccine, we can take confidence from the current roll out and the protection it will provide all of us against this terrible disease,’ Zahawi said.  

The minister also revealed that people may have to receive booster jabs starting this Autumn and that annual vaccines may be needed to ensure people remain protected against mutated versions of the coronavirus. Sarah Gilbert, the lead researcher of the vaccine developed by AstraZeneca and Oxford university, said an adjusted version of the vaccine that can combat the South African variant should be ready by the autumn.

UK exports to EU plunge 68% since Brexit

Exports from Britain to the EU plunged 68% in January after the transition period came to an end and trade fell back on the Brexit deal struck in December 2020.

The claim comes from the Road Haulage Association, which said the new trading arrangements and rules meant there had been disruption to cross-border trade, causing exports to plummet. The organisation added that most lorries entering the UK from the EU were returning to the bloc empty as British firms stop exporting to the EU altogether or because of a lack of supplies.

The UK government has not confirmed the data and said it did ‘not recognise the figure provided’.

UK chancellor considers online sales tax to help pay for pandemic

The UK is considering introducing a new online sales tax against internet retailers to help the country repay the considerable debt pile that has built up during the pandemic.

Sky News, citing unnamed Treasury sources, reported chancellor Rishi Sunak is considering the new tax as part of a wider review of business rates, which is only paid by retailers with physical shops. Notably, he is not expected to take action during the budget next month, when the focus will still be on supporting the economy by looking at extending furlough and business rates holidays.

The Sunday Times reported that Treasury officials had asked to meet tech firms and digital retailers to discuss the tax.

Importantly, reports suggest online retailers that have performed particularly well during the pandemic – like Amazon – could take a double-hit if the UK also introduces an ‘excessive profits tax’.

‘Our business rates review call for evidence included questions on whether we should shift the balance between online and physical shops by introducing an online sales tax. We're considering responses now,’ a spokesperson for the Treasury said.  

Draghi finds tentative support to establish new Italian government

The two largest parties in Italy’s parliament have given their conditional support for Mario Draghi to form a new government but are awaiting to hear his policies before formally backing him.

The 5-Star Movement and the centre-right coalition both provided conditional support on Saturday but said Draghi’s policies would ultimately decide if they backed him. Draghi, the former boss of the ECB, will continue to hold talks this week with the goal of establishing a cabinet and establishing a broad view of what policies will be pursued.  

Forex: Narrow movements

EUR/GBP was trading at 0.87674 this morning, broadly level from 0.87686 when markets closed on Friday.

EUR/USD was down 0.1% this morning at 1.20350 from 1.20492 at the end of play last week.

GBP/USD was also down 0.1% at 1.37269 from 1.37341 at the last market close.

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Commodities: Oil edges closer toward $60

Oil prices inched closer toward the $60 mark this morning, marking new one-year highs, as markets hope that a global economic recovery can be staged this year and that central banks and governments will continue to support their economies in the meantime.

The main driver has been coming from the US, where the vaccination programme has been accelerated and recent jobs data has only underlined the need for president Joe Biden’s $1.9 trillion stimulus plan. The fact OPEC+ have maintained output cuts has also supported prices.

Brent trades at $59.72 a barrel this morning from $59.44 at the end of play on Friday, while WTI edged up to $57.27 from $56.92.

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Gold traded at $1815 an ounce this morning, up 0.3% from $1810 when markets closed last week.

Silver was up 0.8% at $27.05 per ounce from $26.84 at the end of play last week.

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Market-moving events in the economic calendar

The economic calendar starts this week light. The eurozone’s Sentix investor confidence survey is at 0930 GMT, when South Africa’s unemployment rate will also be published.

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.