This week, traders will continue to look at the United States, which has seen a partial government shutdown go on for more than three weeks. This makes it the longest shut down in history. It has been caused by the disagreements between the legislative and executive arms of the US government on border wall funding. This week, investors will pay close attention to the US. Most importantly, they will watch closely whether any of the big three ratings agency will downgrade US bonds. Just last week, Fitch announced that it was likely to downgrade the AAA US bonds if the shutdown continues. Such a move would be disastrous for the market.
Attention will also turn to the United Kingdom where members of parliament will have a vote on Theresa May’s Brexit proposal. This was a vote that was scheduled to happen in December but was postponed because of its unpopularity. Today, Theresa May will address the members of parliament and caution them on the dangers of voting against the bill. The European Union too will try to salvage the deal, with Jean-Claude Juncker expected to reassure Eurosceptic parliamentarians on the backstop issue. At the current prices, investors are pricing for a breakthrough in the vote or a delay of the March deadline.
Traders will also be focusing on UK data. On Wednesday, the UK will release the inflation numbers. The headline CPI is expected to rise by 2.2%, which will be lower than the expected 2.3%. On a MoM basis, the CPI is expected to remain unchanged. The core CPI, which strips the volatile food and energy prices, is expected to remain unchanged at 1.8%. The PPI data is expected to show that input rose by 3.5% while output increased by 2.9%. On Friday, the retail sales are expected to show an increase of 3.4%, down from 3.6% in the previous month. The core retail sales are expected to show an increase of 3.8%, in line with the previous month.
Another big issue this week will be earnings. The season will start today with the release of key numbers from Citi, Bank of America, JP Morgan, and Wells Fargo. Later in the week, companies like Goldman Sachs and Netflix will report. This week’s earnings numbers will be closely watched because of the ongoing issues in the market, which is expecting growth to slow down. Signs that growth is slowing down will reverberate across the market, which will likely show some weakness.
There will be other key data this week. Tomorrow, the market will receive CPI numbers from countries like Spain and France. South Africa will report the mining production in December. On Wednesday, the US will release the retail sales and trade data. Crude oil inventories data will also be released by API and EIA. On Thursday, China will release its first reading of Q4 GDP while the EU and US will release inflation numbers and building permits respectively.