This week, the focus of investors will be turned to Washington. On Friday, republicans and democrats failed to reach a consensus on funding the government leading to a shutdown. The rifts between the two parties are growing as both sides take hardline positions. On Sunday, Trump suggested that republicans should use the nuclear option for funding the government. This option allows the majority party to pass on major resolutions without consulting the other party.
The focus will also be in Germany where a major vote happened on Sunday. The Social Democratic Party (SDP) voted to start a coalition government with Angela Merkel. This vote was so crucial to Angela that her political future depended on it. Therefore, I expect the Euro to start the week on a positive note as Merkel begins her fourth tenure in office.
Another area of focus this week among investors will be central bank decisions. On Tuesday, the Japanese Central Bank (BoJ) will conclude its two day meeting and announce their interest rate decision. Investors expect the policy makers to leave interest rates steady at -0.10%. In recent months, investors have speculated that the committee will start winding down the quantitative easing program and start a period of normalization in line with other central banks.
On Thursday, ECB will conclude its two day meeting and announce its interest rate decision. Investors expect the committee to leave interest rates unchanged. This is also expected in the remaining part of the year. Investors will focus on the details from the policy makers. This month, the ECB reduced by half the monthly asset purchases. This is aimed at a final wind down of the easing program in September this year. Last week, the Euro and the German Bunds surged after chatter emerged that the ECB was focused on starting normalizing early next year.
From Europe, we will receive the German ZEW Economic Sentiment (Jan), details from a meeting of EU Finance Ministers, German Manufacturing PMI GfK German Consumer Climate, and the German Ifo Business Climate Index.
In the United States, investors will pay a closer attention to corporate earnings in a week that is expected to be very busy. Companies expected to release earnings include: Proctor and Gamble, Haliburton, Netflix, UBS, Caterpillar, Johnson and Johnson, and Verizon among others.
On economic data, markets may focus on the existing home sales, new home sales, GDP, core durable goods orders, and the real consumer spending.
Traders will also pay close attention to commodities. As you know, YTD, commodities have experienced a significant rally led by crude oil. On Friday, EIA reported that the United States is on pace to overtake Russia and Saudi Arabia as the top crude oil exporter. This led to a 50 basis points decline in oil prices as investors ‘digested’ the news.
In the UK, the talks of Brexit and politics will continue to dominate the market. There is chatter on the future of Theresa May as the PM. Many investors expect her opponent, Jeremy Corbyn to become the PM within a short period of time. Investors will receive data on the average earnings, claimant count change, GDP, and a statement from Governor Carney. Political instability may translate into GBP instability.