Market Action

Global equities continued their advance into record territory, again crossing the 29,000 line. Despite the strong equity market performance, the yield on the 10-year US Treasury remained at 1.84% while the price of a barrel of West Texas Intermediate crude oil dropped $0.50 to $58.50. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), held steady at 12.2.

US President Donald Trump and Chinese Vice Premier Liu He signed phase one of a trade agreement between the US and China. This portion of the agreement mandates China to increase their imports of US goods and services by $200 billion. Significant tariffs will remain in place until a more comprehensive agreement can be reached. The deal also includes measures on intellectual property protection and gives both Washington and Beijing the authority to reimpose tariffs if the other party falls short of its commitments.

In Taiwan, President Tsai Ing-wen was reelected in a landslide demonstrating that the people of Taiwan support formal independence from mainland China. President Tsai Ing-wen and her Democratic Progressive Party won more votes than any other presidential candidate in Taiwan’s history. The elections were energized by prodemocracy protests in Hong Kong, strengthening the desire for more freedom and democracy in the region.

Russia’s Prime Minister Dmitry Medvedev and the entire cabinet resigned this week after President Vladimir Putin’s annual state of the nation address. In his address, President Putin proposed a referendum to address big changes to the country’s political system. Part of his proposal is to weaken presidential power and boost that of Russia’s legislature and State Council. This may sound like a move in a more democratic direction, but both the Russian legislature and State of Council have said he could lead after his presidential term formally ends in 2024, therefore extending his 2-year rule in a new capacity.

The “E3” countries – made up by France, Germany, and the United Kingdom – have triggered a mechanism in the 2015 nuclear agreement with Iran that will allow further sanctions on the country for noncompliance with the deal. After US-Iran tensions rose to a new high with the killing of Iranian general Qasem Soleimani, Iran announced it would end compliance with the nuclear deal. The US had been putting intense pressure on the E3 countries to trigger the dispute resolution mechanism, threatening a 25% tariff on European automobiles.

Ireland’s Prime Minister, Leo Varadkar, has called a snap general election to be held February 8th. The announcement follows Ireland’s agreement with the United Kingdom on its orderly exit from the European Union and the deal made last week to restore Northern Ireland’s government. Varadkar says this is a window of opportunity to have a new government in place before the next European Council meeting in March.

The US Senate overwhelmingly approved the US-Mexico-Canada trade agreement which will be signed very soon by President Trump. The deal has already been approved by the Mexican parliament and is awaiting ratification by Canada.

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What Could Affect the Markets in the Days and Weeks Ahead

President Trump’s impeachment trial in the Senate begins in earnest next week. At the formal opening of the trial on Thursday, the senators swore to deliver “impartial justice”. However, Senate Majority Leader Mitch McConnell reportedly said last month “I’m not an impartial juror. This is a political process.”

On Sunday, Berlin will host a peace summit aimed at ending Libya’s years-long civil war. Earlier this week Libyan leaders on both sides of the conflict traveled to Moscow as Russia hosted peace talks. Renegade Libyan commander Khalifa Haftar, whose forces are waging war against Libya’s UN-backed government, left the peace talks without formalizing a cease-fire agreement.

World leaders will meet this week at the World Economic Forum in Davos, Switzerland. 53 heads of state are expected to attend alongside 35 finance and 30 trade ministers. The summit this year will be centered on how to make businesses more climate-friendly.

Many rate-setting countries, such as Japan, Canada, Norway, and the euro zone, will be holding their first policy meetings of the year this week. China will be setting their loan prime rates and emerging markets Indonesia and Malaysia will also be announcing their policy strategy this week.

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