Government Shutdown

Last week, global stocks continued their surge led by American companies. On Friday, the Dow gained 228 points to end the week at a record $25,803 level.

The climb by stocks was attributed to positive results from American banks, Wells Fargo and JP Morgan which beat analyst estimates on revenues and earnings. However, the banks suffered one-time tax reform related costs.

On Monday, Americans will celebrate the Martin Luther King Day, which means that US markets will be closed today.

After that, the focus will turn to the United States where the focus among investors will be about the government funding. As you recall, before Christmas, Washington extended the stopgap funding measure to fund the government. It is expected to end on Friday this week.

To fund the government, Trump needs 60 lawmakers in the senate, which means he needs 8 democrats. On the other hand, Democrats have vowed not to vote on any bill that does not allow for DACA recipients to receive protections.

Last week, a group of six bipartisan legislators agreed on a deal that would allow for DACA to receive protections. Trump would get a down payment for his wall.

However, the president hated the deal and during the weekend, he tweeted that DACA was probably dead and blamed the democrats.

Therefore, the focus among markets this week will be in the United States because extended disagreements would lead to a government shutdown.

Throughout the week, U.S stocks may see a minor correction as the lawmakers deliberate on the issue. In addition, I expect the dollar to continue its downward pressure.

The chart below shows the continued weakness of the dollar against top peers.

On Tuesday, the Office of National Statistics (ONS) will release the core inflation numbers. In December, the organization showed that inflation rose to 3.1% which is significantly higher than the BoE’s target of 2%. Tomorrow, markets expect the inflation to fall by 3.0% which may be helped by a slightly stronger pound. A miss on the upside could mean urgency calls for more tightening this year.