Major overseas equity markets were mixed overnight, but U.S. futures are experiencing a modest rebound following yesterday’s losses. Treasury prices are lower to start the day, and the curve is slightly steeper (2yr/10yr +2 bps). Yesterday’s risk-off trade was primarily attributed to concerns that U.S./China trade talks were breaking down, but White House Economic Council Director Larry Kudlow spoke to reporters late yesterday afternoon and said planned meetings between officials of each side remain on the calendar. The next critical meeting will be January 30-31 in Washington.

The federal government remains shutdown, but Senate leaders Chuck Schumer and Mitch McConnell will bring two separate (and competing) funding bills to the floor for a vote tomorrow. The Republican version would end the shutdown and allocate funds for the border wall, and the Democrat version would reopen the government until early February without wall funding. Neither bill is expected to get the necessary 60 votes, but the agreement from both leaders to have the procedural vote marks the first time each side has agreed to anything since the shutdown began on December 22. From a market perspective, it’s also worth contemplating how the shutdown will affect monetary policy. Economic data supplied by government agencies is postponed until the shutdown ends. This means that Fed leaders won’t have access to it, and with the recent shift in guidance from gradual (and programmatic) rate hikes to data dependency, Fed leaders may have a difficult time deciding on another policy action while the government remains shut.

Jason Haley
Managing Director, Investment Management Group