Market movers today
As expected, the UK government survived the confidence motion yesterday and the market’s attention now turns to PM Theresa May’s discussion with party leaders and other leading politicians on how to proceed with the Brexit negotiations. There is an increasing risk that the whole process will drag out and that the UK will need to ask for an extension of Article 50. Dominic Grieve, a pro-EU Conservative backbencher, has tabled two bills that would start preparations for a second EU referendum. The bills will be discussed on 21 January. For an overview of our take, see Brexit Monitor: The waiting game – Brexit edition , 16 January.
Today, the final euro area inflation figures for December are due out. Core inflation surprised again on the downside in the preliminary print and remained unchanged at 1.0%. We will look in particular for any signs that recent strong wage growth is starting to exert upwards pressure on some of the components of service price inflation.
The US Philly Fed index for January is also due out today and it will be interesting to see whether it mirrors the decline in the Empire index earlier this week, pointing to another slight decline for ISM manufacturing in January.
Following the dovish comments from Fed speakers, the Fed’s Quarles is scheduled to speak later today. Keep an eye on comments on the future level of the balance sheet.
The US earnings season continues today with results from Morgan Stanley and Netflix.
Selected market news
Risk sentiment was initial lifted somewhat by a stronger-than-expected start to the earnings season with results from the Bank of America and Goldman Sachs being solid. This, together with the dovish signals from the ECB and the Fed, supports the relief rally we have seen so far in 2019, as the significant sell-off in December due to recession fears seems overdone. This was offset by trade war concerns as Huawei is being investigated by US prosecutors for stealing secrets from companies. This is another sign that while the trade talks are moving forward, the ‘tech war’ probably continues. There is a risk, however, that the tech war will make the trade talks more complicated to conclude. S&P500 futures are trading slightly lower and Asian stocks are mixed.
The US House of Representatives controlled by the Democrats has passed another bill to end the ongoing shutdown, but as it does not include any funds for President Trump’s wall, the Senate will not vote on it, as Trump would veto it anyway. Despite the shutdown being the longest in US history and that missing pay checks are beginning to hurt families, nothing suggests the two sides are getting closer to each other. There is an increasing risk that the shutdown will hit the overall economy the longer it drags out. Trump’s State of the Union address has been cancelled.
