» The Global Markets Weekly – 1/11/19 Decision Economics

The Global Markets Weekly – 1/11/19

Posted January 12, 2019 by rvillareal

Shutdown Drags On, Earnings Begin, Brexit Vote

A quick resolution to the partial U.S. government shutdown looks less likely over the very near term, with the President considering, but not yet ready to act via emergency funding powers. The use of that strategy, even if it fails in the courts, remains a plausible out for the President. It will either succeed, or be ruled unconstitutional by the Supreme Court (if it makes it there) after legal challenges, thus shifting the blame. While the initial move toward shutdown was treated with trepidation in markets, recent weeks have seen a more sanguine take.

Broader economic drag is so far contained, with a key update coming this week in the form of consumer sentiment. About 800K workers are affected by what is now the longest shutdown on record, 420K working without pay and 380K on unpaid leave. While all workers will eventually get paid, DE estimates the daily “cost” to the economy at about $1.5B per day, cutting GDP growth by about 0.1 % point per week. Effects are likely non-linear, that is, a two week shutdown is more than twice as bad as a one-weeker, and a four-week shutdown more than twice as costly as a two-weeker. But, we will never know for sure, even after the fact. The drag will increase as workers missed a paycheck Friday, and unpaid workers including TSA agents will be taking more sick days as time passes.

For investors, the lack of information from the Census Bureau and BEA will make Q4 GDP tracking subject to greater uncertainty, with retail sales likely postponed this week. The bigger news in coming weeks will be the corporate reporting season kicking into action. Deceleration in a 25%-plus y/y pace of earnings growth will begin in earnest, on DE estimates moving into the single-digit range in the first half. A negative print in any one quarter isn’t out of the question in 2019, as energy sector earnings are set to freefall from high double-digit growth, to flat or worse. Banks will begin reporting this week.

Abroad, it’s another sleepy week on the data front, most attention likely to center on the Brexit deal vote in the UK Parliament. Widely expected to fail passage, the question will be the margin and actions after. In the Eurozone, we get some CPI revisions and detail on industrial production, while trade and lending data in China could make some waves.

Coming Week’s Key Indicators and Events

  Release DE / Consensus Comment
U.S. Dec Ret Sales (We)




Jan Consumer Sentiment (Fri)

0.1% / 0.2% m/m

unch / 0.1% m/m



-1.3 / -2.3 points

May be added to postponed data releases due to shutdown, but consumer in good shape in 3-4% annualized range in Q4.

Sentiment impacted by shutdown, equity markets?

Euro Dec Ind Prod (Mo) -1.5%/-1.3% m/m Weak German and French figures suggest monthly decline, special factors may be at play.


Brexit Vote (Tu)

Dec CPI (We)

Dec Ret Sales (Fr)


0.2% / 0.2% m/m

-0.5%/ -0.8% m/m

No-deal Brexit not wanted by Parliament, and threat is not credible by PM May. Brexit extension possible, dragging uncertainty past March.
Japan Dec CPI (Fr)

Ex fresh food

Ex food & energy

0.5% / 0.3% y/y

0.8% / 0.8% y/y

0.3% / 0.3% y/y

Holding around current levels before spike in Q4 2019 on tax effects.
China Dec Loan/M2 (TBD)

Dec Trade

  Some progress on trade last week, more needed.
Turkey Rate Decision unch/unch at 24% Hold for now, cuts possible later this year.


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