US University of Michigan survey on the agenda

Market movers today

• The global data calendar is somewhat thin, albeit with eurozone current account data and the US University of Michigan survey on the agenda.

• In the UK, we are due to get the retail sales number for December, which has historically moved GBP in the case of surprises, although it is a poor indicator for actual private consumption growth.

• Markets will also monitor developments regarding a potential US government shutdown today, as Senate Republicans are now struggling to come up with a bill to keep the government open past the funding deadline today at midnight .

• No major Scandi events are scheduled.

Selected market news

Sentiment was dampened overnight by the threat of a US government shutdown still lingering. The House of Representative managed to pass a spending bill to stop the funding gap until mid-February, which would provide more time to settle longer term issues such as domestic and defence spending. However, the bill st ill needs the backing of the Senate and Democrats have suggested they have the votes to block it in this process, unless they get concessions in terms of protect ion for young immigrants. Should the government shut down, it would be likely to lead to the closure of a range of less vital government institutions, possibly including the release of economic statistics. Note that the stopgap funding requirement near term is separate from the debt ceiling issue; in any case, the government should have the funds to avoid a default if an increase in the debt ceiling is simply agreed on before late February.

US equities ended Thursday lower following a notable decline in the Philly Fed index to 22.2 (from 27.9), thus providing another hint that the US manufacturing cycle is maturing. The market mood improved a bit in the Asian session, with stock indices generally posting small gains. EUR/USD has been relatively steady around the 1.2250 mark after the ECB’s Benoit Coeuré failed to deliver much new ECB insight when speaking yesterday. Oil prices remain under pressure, with Brent falling below USD68.5/bl. The 10Y US Treasury yield rose briefly into the 2.63% area; thus notably breaking the March 2017 high.

Separately, in an interview with the FT yesterday the Fed’s William C. Dudley shared his thoughts on what policy tools would be appropriate to fight the next recession. Notably, Dudley’s comment s echoed t he suggest ion of t he minutes from t he past two Fed meetings that alternative frameworks for monetary policy such as price-level targeting or an inflation target range may be useful to consider. In Research US - The subtle push for price level targeting continues, 3 January, we discussed how introducing a price level target would help the Federal Reserve return inflation to 2% but that it does face some operational hurdles and that a shift in target would be possible no earlier than in 2019.

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