Weekend Review: Investors’ Focus on Government Shutdown and Germany’s Vote

On Friday, the U.S stock market ended in the positive area despite the fears of a government shutdown. The Dow, S&P, and NASDAQ were up 53, 12, and 40 points.

The upward movement showed two things. First, it showed the complacency among investors and second, it showed the forward-looking nature of investors. Most believe that a sell-off may provide an opening for investors to buy on the cheap.

During the weekend, the government shutdown negotiations continued. Bipartisan groups in the senate held meetings to address the key issues while Trump cancelled his planned trip to Florida. By midnight on Sunday, the senators had not reached an agreement.

As of this writing, the futures market shows the market slightly changed with the Dow down 35 points and the S&P down 3.5 points. Going forward, investors will pay close attention to the duration of the shutdown. Remember, in 2013, the government shutdown lasted for 13 days after which a market rally ensued.

Another major issue during the weekend was about South Africa. As you remember, a few weeks ago, the ANC decided to elect the Deputy President, Cyril Ramaphosa to become the party leader. His win was a major blow to the current president, Jacob Zuma who supported his former wife. During the weekend, Ramaphosa seemed in control of the government when he nominated the board of Eskom, the country’s near-bankrupt power company. On Sunday, Wall Street Journal reported that the end for Zuma was near.

During the weekend, investors focused on Germany where the main opposition party (SDP) held an election to decide on coalition talks. These elections were very important to Chancellor Merkel who lacks a majority in parliament. For now, Merkel’s future seems secure which could provide a good foundation for a more stable Euro.

Still, a long route remains for Merkel and her future as Germany’s chancellor. Remember, Germany is the largest economy in Europe and a major source for policy issues like immigration and trade. Instability there could lead to instability everywhere in the Euro area.

During the weekend, U.S vice president started a Middle East tour. This trip comes at an important period in the region after Trump moved to recognize Jerusalem as the capital for Israel. In his trip, Pence spoke to several leaders including Egypt’s Sisi and Jordan’s King Abdulla. He is also expected to speak with Israel’s Netanyahu on finding a peace deal.

In the United Kingdom, Theresa May continued to navigate a complex government that seems to be crumbling. As you recall, in the past snap election, Theresa May lost her majority in government, which led to her, lacking a mandate in the Brexit negotiations. During the weekend, it was reported that 5 of her cabinet ministers had prepared to ask for 100 million pounds per week in the National Health Services funding per week.

This is a major disagreement, which could complicate the Brexit negotiations since she has already reached a consensus with the Labour party. At the open of the market, the pound was up 0.14% which is seen as a dollar weakness.

Sources:

https://www.bloomberg.com/news/articles/2018-01-21/germany-s-spd-backs-merkel-coalition-talks-after-divisive-vote

https://www.reuters.com/article/us-usa-shutdown-impact-factbox/factbox-impact-of-the-u-s-government-shutdown-idUSKBN1FA18C

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