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The U.S. markets this week will focus on (1) Washington politics as President Trump's impeachment trial begins in the Senate with a vote today on the trial rules and with opening arguments on Wednesday, (2) Monday's positive trade news that the U.S. and France reached a truce on France's 3% digital tax that averts retaliatory U.S. tariffs on $2.4 billion of French goods, (3) March Brent crude oil prices, which rallied +0.54% on Monday on production disruptions in Libya and Iraq, (4) Q4 earnings with 41 of the S&P 500 companies reporting, and (5) the Treasury's sale of $14 billion of 10-year TIPS on Thursday.

This week's U.S. economic calendar is light with key reports including (1) Wednesday's Nov FHFA house price index (expected +0.3%) and Dec existing home sales (expected +1.5% m/m after Nov's -1.7%), (2) Thursday's Dec leading indicators report (expected -0.2% after Nov's unchanged), and (3) Friday's Jan Markit U.S. manufacturing and non-manufacturing PMIs (expected +0.1 and - 0.3, respectively).

In Europe, the focus will be on the US/French digital-tax truce, Thursday's ECB meeting, and UK Prime Minister Johnson's progress on getting his Brexit withdrawal bill through Parliament before the Jan 31 deadline.

The market is unanimously expecting the ECB to leave its policy unchanged, but the big news will be ECB President Lagarde's expected official announcement of the ECB's long-term review of its monetary policy, which is expected to be completed by year-end. The ECB is not expected to make any big changes but could switch its inflation target from "close to but below 2%" to a symmetrical 2% target such as that seen in other major countries such as the United States. A symmetrical 2% target would be a dovish shift that would allow, if not encourage, inflation to periodically run a little above 2%.

In Asia, the focus will be on the results of the BOJ meeting that will be announced tonight (ET time). The BOJ is expected to leave its extraordinarily easy monetary policy unchanged. The week-long Chinese Lunar New Year holiday begins this Friday.

Mnuchin says the administration may do a 2A and 2B in the second phase of the trade deal with China.

Big issue at Davos is where to invest money.

New virus out of China getting worse.

Occidental Petroleum Chief touting their direct air carbon capture.

The US calls for immediate resumption of Libyan oil production.

Investor confidence in Germany grows.

The UK's employment hits a record high.

 


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January 21, 2019
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