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The final full week of January will be off to a slow start on Monday, with very few economic data releases scheduled. In the interim, investors will continue to analyze a shutdown of the US government after lawmakers failed to pass a new spending measure.

The US federal government officially closed its doors on Saturday after a proposed extension was voted down by the Republican-controlled Senate. The measure would have kept the government functioning through 16 February.

US stock futures were down across the board on Monday, which pointed to a soft start to the day on Wall Street. Political uncertainty surrounding the Trump administration was a thorny issue for investors during the first year the administration was in office.

In terms of economic data, the Greek government will report on the current account balance at 09:00 GMT. Athens reported a current account deficit of €624 million for October.

Shifting gears to the United States, the Chicago Federal Reserve Bank will issue its national activity index for the month of December. The monthly reading is forecast to rise to 0.44 from 0.15 in November.

North of the border, the Canadian government will report on wholesale sales for the month of November. Sales are projected to rise 0.6% in November after climbing 1.5% the month before.

Attention quickly shifts to monetary policy on Tuesday as the Bank of Japan (BOJ) votes on interest rates. No changes are expected at this time.

The European Central Bank (ECB) is also scheduled to vote on interest rates later this week.

In terms of forthcoming data releases, US GDP, durable goods orders and housing sales will be reported throughout the week.

EUR/USD

Europe’s common currency is trading well off last week’s peak, but continues to show strong upside momentum. The EUR/USD is trading well above 1.2200 and is likely to continue higher now that a US government shut down has undermined demand for the greenback.

GBP/USD

The British pound closed out another solid week against the dollar, with the cable briefly rising above 1.3900. The GBP/USD exchange rate was last up 0.1% at 1.3861. The pair faces immediate resistance at 1.3900, followed by the 1.3945 level. Support is located at 1.3800.

USD/JPY

After staging a mild recovery last week, the US dollar drifted lower against the Japanese yen, a sign that bearish pressure remained. The USD/JPY exchanger rate retreated from a high of around 111.40 all the way down to 111.50 amid concerns of a US government shutdown. With the US government shutting down, demand for the yen will likely stay elevated over the short term. The pair was last seen trading at 110.79 for a gain of 0.2%.

Here are the latest developments in global markets:

FOREX: The US dollar index opened with a small negative gap on Monday after news that the US government shut down on Friday, but managed to recover its losses to trade marginally higher in the following hours.

STOCKS: Japanese markets were in the green today, albeit not by much. The Nikkei 225 and the Topix indices closed up by 0.03% and 0.1% respectively. In Hong Kong, the Hang Seng is 0.4% higher, rising to a fresh record high, while in Europe, futures tracking the Euro Stoxx 50 suggest the index could open slightly higher. In the US, the S&P 500 and Nasdaq Composite indices closed at yet another record high on Friday, with US equity investors appearing unfazed by the threat of a government shutdown. The Dow Jones was up 0.2%, closing just shy of its all-time highs as well. That said, futures tracking the Dow, S&P and Nasdaq 100 are all in negative territory at the time of writing.

COMMODITIES: Energy prices traded somewhat higher, with WTI and Brent crude being up 0.1% and 0.3% respectively. The positive reaction may be owed to some remarks by Saudi Arabia’s energy minister on Sunday, who hinted that there is a consensus among major oil producers to continue with their supply curbs even beyond 2018, when the current production-cut deal expires. In precious metals, gold was down nearly 0.1%, last trading near the $1330 per ounce territory.

Major movers: US government shuts down while Germany moves closer to forming a government

In the US, a government shutdown began on Friday, after lawmakers in the Senate failed to reach an agreement on a deal to fund government expenses, amid major disagreements on immigration and border security. The greenback opened with small negative gaps against its major counterparts, but the weakness was not sustained, with the dollar index managing to claw back its losses and even trade slightly higher in the following hours.

Combined with the fact that major US equity indices closed at new record highs on Friday, the subdued market reaction suggests investors are not particularly worried by the government shutdown. It appears the market expects this situation to be resolved fairly quickly, before it has any material impact on the economy or business sentiment. In this respect, the Senate is expected to vote again today (1700 GMT) on whether to pass a bill that would fund the government until early February.

Encouraging political developments in Germany during the weekend helped euro pairs to open with positive gaps this week, though the moves were short-lived, with euro/dollar and other euro crosses giving back their gains in the following hours. The Social Democrats (SPD) voted in favor of pursuing coalition talks with Merkel’s conservatives, opening the door for a stable and pro-EU government in Germany after several months of uncertainty. Although there are still many hurdles to be resolved until a deal is finalized, this is still seen as a significant step towards an accord. The single currency could enjoy some support from this positive sentiment, but its broader direction will probably be dictated by the ECB policy decision on Thursday. Markets are likely to focus on whether President Draghi will echo recent remarks by his colleagues and express discomfort with the recent appreciation in the euro.

Elsewhere, the yen was somewhat softer against both the euro and the dollar. The Bank of Japan (BoJ) is due to announce its policy decision tomorrow, and while there are no expectations for any change in policy, traders will be watching Governor Kuroda’s press conference closely for any signals on the future direction of policy. Given recent chatter that the BoJ is slowly heading for the stimulus-exit door, Kuroda may take the opportunity to push back against such speculation, reiterating his dovish remarks after the December gathering.

Day ahead: US and German politics gathering attention

In the absence of major data releases and amid the federal government shutdown, politics are in the forefront in the US. Market participants will be closely monitoring the situation with a vote to fund government operations through February 8 set to take place at 1700 GMT; the longer the stalemate remains in place, the more likely the US currency will come under pressure.

Canada will see the release of figures on November wholesale trade at 1330 GMT; the numbers are not expected to move markets.

ECB President Mario Draghi and executive board member Benoit Coeure will be participating in a Eurogroup meeting taking place today.

The earnings season continues with Netflix releasing quarterly results after Monday’s US market close.

The global elite will tomorrow be attending the World Economic Forum at Davos, Switzerland.

Day ahead: US and German politics gathering attention

In the absence of major data releases and amid the federal government shutdown, politics are in the forefront in the US. Market participants will be closely monitoring the situation with a vote to fund government operations through February 8 set to take place at 1700 GMT; the longer the stalemate remains in place, the more likely the US currency will come under pressure.

Canada will see the release of figures on November wholesale trade at 1330 GMT; the numbers are not expected to move markets.

ECB President Mario Draghi and executive board member Benoit Coeure will be participating in a Eurogroup meeting taking place today.

The earnings season continues with Netflix releasing quarterly results after Monday’s US market close.

The global elite will tomorrow be attending the World Economic Forum at Davos, Switzerland.

EURUSD challenged a fresh 3-year high above the 1.2300 price level during the previous week but currently, the price is holding below the aforementioned level. The price jumped to 1.2320 for the first time since December 2014, after extending a strong rally that started from the low of the 1.1900 handle.

Looking at the daily timeframe, it is worth mentioning that the Asian session has started with a gap up and the price pared those gains in the last hours. In addition, over the last five trading days, the price is consolidating within the 1.2160 support barrier and the 1.2320 resistance level, waiting for any significant economic data to push the price in either direction.

From the technical point of view, the momentum indicators seem to be in confusion. The RSI indicator dropped below the overbought area but is standing near the 70 level, however, the MACD oscillator lies above its trigger and zero line but with weaker momentum than the previous sessions. Furthermore, the 20 and 40-day simple moving averages are following the upward movement.

A sharp buying interest above the 3-year high of 1.2320, could drive the world’s most traded currency pair towards the 1.2570 resistance level, taken from the peak from December 14, 2014. This is considered to be a strong resistance area which has been rejected a few times in the past.

On the flip side, if prices reverse lower, immediate support should come at 1.2160 and slightly lower at 1.2090. A drop below this area would take the price closer to the 1.1900 strong psychological level. A breach of this level would shift the medium-outlook from positive to neutral.

The Euro opened with gap-higher on Monday against the dollar which came under increased pressure on US government shutdown, but eased during Asian session as greenback started to regain traction. The pair peaked at 1.2271 after opening and subsequent dip found footstep at 1.2214 (Friday's low). Some recovery attempts were seen in early European trading, but gains were unable to clearly break barrier at 1.2235 (cluster of hourly MA's). Studies on lower timeframes are in neutral setup and show no clear direction in the near-term. Larger picture (daily) shows the pair in extended consolidation range after failure to clearly break 1.2300 barrier, but overall uptrend stays intact. The EURUSD pair was up over 2% in the first three weeks of 2018, extending broader uptrend from Jan 2017. Recent gains were boosted by rising expectations that the European Central Bank will end its QE program, as signaled by hawkish ECB minutes two weeks ago. Focus turns towards ECB policy meeting on Thursday, with continuing hawkish tone from the central bank to further inflate the Euro. Daily techs are firmly bullish and continue to underpin, with current consolidation being triggered by overbought conditions. Bullish structure is expected to stay intact while the price holds above pivotal support at 1.2165 (consolidation range low, reinforced by rising 10SMA). Only break here would signal deeper correction, however, extended dips would offer fresh buying opportunities as buying dips on strong uptrend remains favored scenario. The pair may stay within the range until ECB meeting, with EU/German ZEW data on Tuesday and PMI data release on Wednesday also being in focus.

Res: 1.2249, 1.2271, 1.2296, 1.2323
Sup: 1.2214, 1.2200, 1.2165, 1.2123

Currency pair EUR/USD

The EUR/USD is building a sideways retracement and the triangle chart pattern is probably just a correction within the uptrend. A bullish breakout above the resistance trend line (dotted red) could indicate the uptrend continuation towards the Fibonacci targets of wave 5 (blue).

The EUR/USD could expand the correction via a bearish ABC (brown) zigzag if price breaks below the support trend line (blue).

Currency pair GBP/USD

The GBP/USD is challenging the support line of the bullish channel. A break below the channel could see price test the Fibonacci support levels of wave 4 (green).

The GBP/USD is building a potential wave ABC (blue) correction which could take price towards the Fib levels. A bullish break above the round level of 1.40 could indicate a continuation of the uptrend.

Currency pair USD/JPY

The USD/JPY failed to break the previous bottom and could be using it to bolster a new bullish rally.

The USD/JPY could be completing wave 2 (purple) and starting a wave 3 (purple) bullish momentum.

The U.S. government shutdown over the weekend as the Senate failed to pass a bill to keep the funds flowing late on Friday. The Democrats are making an issue of protections for young undocumented immigrants. President Trump has responded saying he will not negotiate on the issue until democrats vote to end the shutdown and reopen the government. How markets will react is still uncertain but risk has increased as a result of this political brinksmanship.

The German SPD party has voted to begin formal coalition talks with Chancellor Merkel’s Conservatives in an attempt to break the deadlock of the last few months and form a Government for the leading economy in Europe. Party delegates voted 362 to 279 in favour, with one abstention, for negotiations. The leaders had agreed on a blueprint for the coalition earlier this month but once a deal is struck from these negotiations the party will again have to vote to approve any subsequent Coalition before entering government. This vote was only the first step in the process that is expected to be difficult, as leading conservatives earlier rejected SPD demands for major concessions.

On Friday, German Producer Price Index (MoM) (Dec) was released and came in as expected at 0.2%, from 0.1% prior. The Producer Price Index (YoY) (Dec) was also as expected ta 2.3%, from 2.5% previously. EURUSD moved from 1.22447 to 1.22697 after the data release

The U.S. government shutdown over the weekend as the Senate failed to pass a bill to keep the funds flowing late on Friday. The Democrats are making an issue of protections for young undocumented immigrants. President Trump has responded saying he will not negotiate on the issue until democrats vote to end the shutdown and reopen the government. How markets will react is still uncertain but risk has increased as a result of this political brinksmanship.

The German SPD party has voted to begin formal coalition talks with Chancellor Merkel’s Conservatives in an attempt to break the deadlock of the last few months and form a Government for the leading economy in Europe. Party delegates voted 362 to 279 in favour, with one abstention, for negotiations. The leaders had agreed on a blueprint for the coalition earlier this month but once a deal is struck from these negotiations the party will again have to vote to approve any subsequent Coalition before entering government. This vote was only the first step in the process that is expected to be difficult, as leading conservatives earlier rejected SPD demands for major concessions.

On Friday, German Producer Price Index (MoM) (Dec) was released and came in as expected at 0.2%, from 0.1% prior. The Producer Price Index (YoY) (Dec) was also as expected ta 2.3%, from 2.5% previously. EURUSD moved from 1.22447 to 1.22697 after the data release

US Baker Hughes Rig Count was released at 747. The previously published number was 752. The Fed’s Quarles spoke at the Banking Law Committee Meeting in D.C. saying he intends to ease the burden of FED stress tests. He said that leverage ratio proposals are coming ‘relatively soon’ and that he wants to dial back the burden of living wills.

EURUSD is up 0.07% overnight, trading around 1.22230.

USDJPY is up 0.05% in early session trading at around 110.870.

GBPUSD is up 0.15% to trade around 1.38680.

USDCAD is down -0.11%, trading around 1.24819.

Gold is down -0.07% in early morning trading at around $1,330.10.

WTI is down -0.14% this morning, trading around $63.37.

Major data releases for today:

At 13:30 GMT, US Chicago Fed National Activity Index (Dec) will be released. The consensus is for 0.44 from 0.15 previously. USD crosses could be impacted by these data releases.

Major data releases for the week ahead:

On Tuesday at 04:00 GMT, Bank of Japan Interest Rate Decision and Policy Statement, Press conference to follow.

On Thursday at 12:45 GMT, Eurozone ECB Interest Rate Decision with Policy Statement and Press Conference to follow at 13:30 GMT.

At 13:30 GMT, Canadian Retail Sales (MoM) (Nov) and Retail Sales Ex-Autos (MoM) (Nov) will be released.

On Friday at 13:30 GMT, US Gross Domestic Product Annualized (Q4) will be released.

The U.S. government entered its third day of shutdown after U.S. Congress failed to arrive at a short-term budget deal. Although the story has been a major talking point among media, investors don’t seem too worried about the impact on their investments. Price action in most asset classes suggests that financial markets are growing increasingly immune to America’s political drama.

Although a shutdown will likely have a modest impact on growth due to lower spending, it largely depends on the duration to see a meaningful impact on GDP. According to Standard & Poor’s, the last time the government shutdown in 2013 for 16 days, the U.S. economy took a $24 billion hit. This suggests Q1 GDP may be dragged down 0.3% on average, for every week the government is shutdown.

Asian equities traded slightly lower on Monday, but given that the Japanese Yen and gold are flat at the time of writing, traders feel that the drama will be over soon. It remains to be seen whether the Democrats and Republicans will pass a short-term bill later today to keep the government running.

In Germany the government seems getting closer to forming a coalition after the Social Democrats voted in favor of entering formal coalition talks. The Euro gapped higher at the beginning of today’s session but gave up most of the gains few hours later. Given that only 56% of the SPD’s voted in favor of the talks, the rejection of a final coalition deal remains a risk that’s likely to keep the Euro capped for now.

The most interesting move seen in markets today was the U.S. 10-year treasury yields which broke above 2.67% for the first time since July 2014. This took U.S. – German 10-year yields to 208 basis points after it declined to 198 basis points on 16 January. I believe that the dollar should start benefiting from higher spreads especially if the European Central Bank manages to drag yields on European bonds when they meet on Thursday.

The Bank of Japan is also due to meet this week. Neither Banks are expected to change policy. BoJ will leave its policy rate unchanged at -0.1% and 10-year JGB at 0%, and the ECB will keep the benchmark, marginal lending and deposit rate unchanged at 0%, 0.25% and -0.4% respectively. Although the most recent minutes from the ECB suggested that policymakers are looking to tweak guidance in early 2018, I think the strong Euro performance will concern them. Thus, expect Mario Draghi to reiterate that interest rates won’t go higher until well beyond the end of the asset purchase program

Sunrise Market Commentary

• Rates: Cautiousness ahead of key events?
  Today's trading might be paralyzed with key event risk looming. The US Senate has a vote scheduled after European trading to end the government shutdown. A positive outcome could push US yield through key resistance levels. Tomorrow morning's BoJ meeting and Thursday's ECB gathering are this week's other highlights.
• Currencies: USD withstands US government shutdown
  The dollar struggled to prevent further losses, but sentiment seems to be changing since the end last week and this morning. The greenback suffered no further damage from the political uncertainty due the US government shutdown. Will USD finally profit from rising interest rate support once the shutdown is 'solved'?

The Sunrise Headlines

• US stock markets ended 0.2% to 0.5% higher on Friday despite the looming vote to avoid a government shutdown. Asian stock markets trade with similar gains this morning with Japan and Korea underperforming.
• Germany took a big step towards forming a new government when the SPD voted in favour of formal coalition talks that could give Merkel a fourth term in office and break a four-month political deadlock.
• A US government shutdown will enter its third day as Senate negotiators failed to reach agreement to restore federal spending authority and deal with demands from Democrats that young "Dreamers" be protected from deportation. A new vote is set for today at 6pm CET.
• The Fed should continue to raise rates at a gradual pace during 2018 ('3 rate hikes is good starting point'), SF Fed President Williams said, saying he expects the recent tax cuts and other tailwinds to boost economic growth this year.
• OPEC and Russia reaffirmed their oil-cut alliance may endure past 2018. Russia is prepared to continue cooperating with the cartel and Saudi Arabia even after the deal expires, Energy Minister Novak said.
• Greece's sovereign credit rating was raised one level by S&P to B (positive outlook). EMU FM's meet today to assess the country's compliance with bailout terms and could sign off on loan disbursements of about €6.7 bn.
• Spain's credit rating was raised one level at Fitch, from BBB+ to A- (stable outlook), which said the country's 'buoyant' economic growth has helped reduce the government's general deficit.

Currencies: USD Withstands US Government Shutdown

USD withstands US government shutdown

The US government shutdown debate dominated the headlines on Friday, but there was no risk-aversion. US yields, equities and the dollar even traded with a upward bias as the US session proceeded. US bond yields tested resistance levels. The dollar held up well even as the political stalemate persisted. EUR/USD finished the session at 1.2222 (from 1.2238). USD/JPY closed the day slightly lower at 110.77.

The US Senate didn't agree on a spending bill. There was a slight retracement on Friday's reflation trade at the start in Asia this morning, but the move didn't went far. US yields decline slightly but the test of key technical levels is ongoing. The dollar opened slightly softer, but EUR/USD and USD/JPY soon rebounded back to Friday's closing levels.

The eco calendar is empty today. European news is constructive with the German SPD members giving green light for coalition talks. Spain and Greece enjoyed a rate upgrade on Friday. For now, this doesn't help the euro much. Markets will look out for a new vote on a temporary spending bill scheduled for CET 18.00. USD trading might remain erratic and driven by the news flow from Washington. That said, USD sentiment doesn't look too bad this morning. Is the US currency finally receiving some support from higher US yields?

Global Picture: the dollar was in the defensive of late as markets prepare for a change in policy from central banks outside the US. This propelled EUR/USD despite a huge interest rate differential in favour of the dollar. The USD decline slowed last week, but any 'rebound' remained unconvincing. A return below previous resistance at 1.2092 is needed to call off the ST alert for the dollar. EUR/USD 1.2598 (62% retracement) is next important resistance on the charts.

Disappointing UK retail sales mitigated sterling's positive momentum last week, but the damage for the UK currency was limited. EUR/GBP gradually returned to intermediate support in the low 0.88 area (probably inspired by the intraday EUR/USD price trend. Later this week, the UK CBI order data (Tuesday), labour data (Wednesday) and the first Q4 GDP estimate will be published. Of late, UK eco data were mostly only of intraday significance for sterling trading. Even so, a break below the 0.8800/10 area, might open the way for a retracement toward the 0.87 support, which we still consider a tough resistance

EUR/USD: stays away from recent top despite US political uncertainty

Download entire Sunrise Market Commentary

Headlines/Economic Data

General Trend: Asian markets trade mixed as US government shutdown approaches 3rd day

US dollar (USD) trades broadly weaker following start of US government shutdown

South Korea 10-year bond yield rises over 5bps amid debt sale and gov’t considering issuance of 50-year bond; MSCI said the previously proposed capital gains tax on foreigners may hurt the South Korean equity market

Japan

Nikkei 225 opened -0.7%; closed %

TOPIX Securities +1%; Iron & Steel -1.2%

Nippon Paint +10% [4612.JP]: Largest shareholder Wuthelam Group is seeking more seats on board

Toshiba [6502.JP]: +3%: Considering IPO of memory chip business if sale falls through or fails to get regulatory approval by the end of March – FT

Kawasaki Heavy [7012.JP]: +1% (Expected to win a large order for subway cars in NYC – Nikkei)

Tokyo Steel [5423.JP] -1.3%: To raise Feb H-beam prices to ¥89K/t from ¥87K, hot-rolled oil price to ¥74K/ton from ¥73K

Nippon Steel [5401.JP] President: Want to raise steel prices again this year to reflect rising costs of raw materials and transportation

Looking Ahead: Bank of Japan (BoJ) decision and quarterly outlook report due for release on Tuesday

Tokyo Steel to report FY results after close on Tuesday

Korea

Kospi opened -0.2%

Chipmakers decline: Samsung Electronics -2%, Hynix -2.2%

Steelmakers trade weaker: Posco -3.5%, Hyundai Steel -0.5%

Banks trade generally weaker: Hana Financial -1.9%, Industrial Bank of Korea -1%, Woori Bank -1.1%,

Lotte Chemical [011170.KR]: +4.5% (positive broker commentary)

(KR) South Korea Dec PPI M/M: 0.1% v -0.1% prior; Y/Y: 2.3% v 3.1% prior

(KR) South Korea Jan 20-day Exports y/y: 9.2% v 16.4% prior; Imports y/y: 14.1% v 19.5% prior

(KR) South Korea Govt to mandate banks and exchanges to keep records of cryptocurrency transactions, in a potential move to impose taxes on the largely covert deals, financial authorities

(KR) South Korea Financial Services Commission: will tighten capital regulations on high-risk household lending

(KR) South Korea Finance Ministry: 'Positively' considering issuance of 50-year government bond

China/Hong Kong

Hang Seng opened +0.1%, Shanghai Composite -0.3%

Hang Seng Services Index +1.6% (strength in airlines and gaming firms), Materials +1.3%, Property/Construction +0.6%; Telecom -0.2%

HSBC -0.5% (~10.3% weighting of Hang Seng Index)

Units of China conglomerate HNA Group trade lower: HNA Infrastructure and HNA Innovation each decline by over 9%

Pou Sheng International [3813.HK] +27% (received takeover offer from Taiwan based parent company)

(CN) PBOC Adviser: Reiterates there is no need for PBoC to raise benchmark interest rates – China Daily

(CN) China PBOC OMO: Injects CNY110B v CNY230B injected in 7,14 and 63-day reverse repos prior: Net injection CNY20B v CNY80B injected prior

USD/CNY (CN) PBOC SETS YUAN REFERENCE RATE AT 6.4112 v 6.4169 PRIOR (strongest CNY fix since Dec 8, 2015)

(CN) China Energy Administration: 2017 power consumption 6,307.7B KwH. +6.6% y/y

(CN) China forex market-making banks have voluntarily changed the counter-cyclical adjustment factor to the neutral stance in the pricing mechanism of the yuan's central parity rate in response to weakened yuan depreciation prospects.

(CN) China NDRC Spokesperson: Reiterates confident economy will maintain steady and good momentum in 2018; End 2017 outstanding corporate bonds CNY4.9T

Australia/New Zealand

ASX 200 opened +0.1%; closed -0.2%

ASX 200 REIT Index -0.5%, Financials -0.4%, Energy -0.4%

Commonwealth Bank [CBA.AU] -1.3% (cautious broker commentary)

SDL.AU To sell 51% stake in Cam Iron to Tidfore under MOU, no terms disclosed yet; +67%

YAL.AU Reports Q4 saleable coal production 8.65Mt, +92% y/y; +10%

DHG.AU Guides H1 digital revenue growth +22% y/y; total revenue growth +13% y/y; CEO Anthony Catalano to resign -12%

(AU) Australia PM Turnbull affirms next election won’t be held until 2019 - AFR

(AU) ANZ sees RBA raising rates in May this year as inflation picks up - local press

Other Asia

(TW) Taiwan may include Bitcoin in anti-money laundering rules - local press

Taiwan Dollar (TWD) gains 0.6% (highest level since Jan 2013)

(TH) Thailand Dec Customs Trade Balance: -$280M v $1.1Be (1st deficit since July 2017)

North America

US government shutdown: On Sunday, the US government shutdown entered its second day

(US) Senator Majority Leader Mcconnell (R): Set next Senate procedural vote on 3-week stopgap spending bill for noon EST Monday (vs prior reports that a vote could occur at 1 am EST on Monday); If DACA is not resolved by Feb 8th and government is open, he would allow a vote.

(US) Senator Flake (R-AZ):; Bipartisan meeting to be held on Monday at 10 am EST to discuss continuing resolution (CR)

(US) US Senate minority leader Schumer (D): Yet to reach agreement on path forward

Xerox [XRX]: Shareholders Icahn and Deason said to call for possible sale of the company - US financial media

Bioverativ [BIVV]: Sanofi said to be near deal to acquire the company for more than $11.5B; shareholders could receive $105/share (~64% premium) - US financial press

Looking ahead: Corporate earnings are expected from companies including Haliburton, Netflix, Steel Dynamics, TD Ameritrade

Europe

(DE) Today Germany Social Democrats (SPD, center-left) in a part conference agreed to support the opening of formal coalition talks with Chancellor Merkel’s conservative bloc

(ES) Fitch raises Spain sovereign rating one notch to A- from BBB+; outlook to Stable from Positive (from Jan 19th)

(GR) S&P raises Greece sovereign rating one notch to B from B-; maintains outlook Positive (from Jan 19th)

Barclays: Tiger Global has built more than a $1.0B stake in Barclays - FT

Looking Ahead: World Economic Forum due to be held in Davos, Switzerland from Jan 23-26th

Corporate earnings are expected from companies including UBS

Levels as of 01:00ET

Nikkei225 0%, Hang Seng +0.3%; Shanghai Composite +0.0%; ASX200 -0.2%, Kospi -0.9%

Equity Futures: S&P500 -0.1%; Nasdaq100 -0.1%, Dax +0.0%; FTSE100 -0.2%

EUR 1.2274-1.2214; JPY 110.89-110.53; AUD 0.8003-0.7978;NZD 0.7289-0.7268

Feb Gold -0.1% at $1,331/oz; Mar Crude Oil +0.2% at $63.41/brl; Mar Copper +0.6% at $3.20/lb

Market movers today

We have a fairly quiet start to the week, which will be dominated by the Bank of Japan meeting (decision due to be announced tomorrow morning) and the ECB meeting on Thursday. See our expectations in our respective previews: BoJ preview, 17 January, and ECB preview, 19 January. On the BoJ meeting, we expect it to keep its 'QQE with yield curve control' policy unchanged, while Governor Haruhiko Kuroda should downplay the significance of daily market operations and repeat the BoJ's commitment to the current yield curve control. Looking ahead, we think it will keep its policy unchanged in 2018, assuming Kuroda is reappointed when his term ends in April.

Given the few data releases today, investor focus will be on the political developments in the US and Germany. In the US, investors will focus on the implications of a shutdown of the US government on Friday, as the US senate failed to pass a short -term funding measure (see here).

In the Germany, investors are likely to price in an increased likelihood of a grand coalition following SPD members yesterday giving their support for the party leadership to open formal coalition talks with the CDU/CSU on forming a new government .

Market movers today

Asian markets are mixed this morning with China slightly up while Japanese shares are down. This follows a weekend of significant political developments on both sides of the At lantic. In the US, members of congress have sought to break the stalemate that followed the failure to pass the short -term funding measure to keep the US government open. It is difficult to predict how long the US government shutdown will last, al though our base case is that it will find a solution fairly quickly. This should limit the economic damage: During the last closure of government in Q4 13 (more precisely from 1-17 October that year), GDP growth was lowered by about 0.3 percentage points, as federal workers were sent home, according to a BEA analysis. The USD was little affected over the weekend by the government shutdown.

In Germany yesterday, the Social Democrats (SPD) voted `yes' to pursue coalition talks with Angela Merkel's conservatives , moving one step closer to a stable government after months of political uncertainty. SPD delegates voted by 362 to 279 to move ahead with negotiations after the centre-left party's leaders agreed a preliminary coalition blueprint with Merkel's conservative bloc earlier this month. There was one abstention. Her party is due to recommend the resumption of coalition talks as soon as today.

Over the weekend, Spain was upgraded to ‘A-' by Fitch due to the improved growth and debt out look, as Catalonia was not seen to have had a big economic impact so far. We expect that Spain will launch a new 10y benchmark next week and look out for a strong demand and tight price.