Daily Market Color

Risk Assets Climb as End to US Government Shutdown Draws Near

US Government Takes the Weekend Off

It looks like the US government partial shutdown will have lasted 3 days this go round as Senate lawmakers early this afternoon announced the passage of a stopgap bill via an 81-18 vote, which they were unable to reach by the original deadline last Friday.  Pending acceptance from the House and President Trump, the funding will extend through February 8th and provide lawmakers with additional time to hash out a longer term compromise on the details of immigration policy for the ”Dreamers”, the border wall and other spending policies.

US financial markets shifted into risk-on mode following the Senate’s announcement, albeit investors did not seem too concerned about the spending bill complications to begin with.  Treasurys reversed a rally from early in the trading session when yields/swap rates had declined by 2-5bps across the curve.  The yield on the 10-year note is now close to unchanged on the day, remaining near 2.66%.  All three major stock indices climbed to new record highs, led by gains in the telecommunications and energy sectors.  Looking ahead, another flurry of earnings reports are set to be released this week and will help to set the tone for the equity markets, while central bank policy meetings in Europe and Japan will be closely analyzed by global fixed income investors.



In commodities, crude oil futures fluctuated between gains and losses on the day in response to this weekend’s meeting between OPEC and its allies, where it was determined that the existing production cut agreement would extend through the end of 2018.  The conclusion drew the support of the two largest nations in the pact, Saudi Arabia and Russia, however, lots of questions remain regarding the effectiveness of the policy, coupled with concerns over rising US production.  WTI crude finished the trading session up 0.4% to $63.75/barrel and remains near its highest level in more than three years. 



Merkel’s Coalition Strengthens Heading Into Davos

On Sunday, German Chancellor Angela Merkel and her Christian Democratic Union (CDU) welcomed the results of the Social Democratic Party’s (SPD) vote to begin negotiations on forming a grand coalition between the two parties, with the intention of establishing a unified policy platform.  Following last year’s election where the growth in European populism led to a weakening in the CDU’s control over the government, Merkel has lacked the necessary support to avoid a political stalemate within Europe’s largest economy.  This decision by the SPD provides a positive outlook for Merkel’s chances of forming a fourth-term government as she heads into this week’s World Economic Forum in Davos, Switzerland.  Negotiations are expected to last 2-3 weeks, however any final deal will need to be approved by SPD delegates.  The euro rose as much as 0.4% against the US dollar following the news.


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