Yesterday, markets traded sideways overall without any significant news. The overnight session in Asia continued its wait-and-see mode ahead of the central bank meetings today. However, the US equity markets ended on a stronger footing, as the earnings season has started. Concerns about the growth implications of the US government shutdown have started to circulate. Yesterday, White House economic advisor Kevin Hassett cautioned that zero growth is possible should the shutdown continue through March, followed by ‘humongous’ growth once the shutdown ends. Later, media reports suggested that the Democrats may grant President Trump his USD5bn-plus budget request to increase border security. However, those funds are said not to be used to build a wall, but ‘only’ to increase border security.
Expected today in terms of data releases, preliminary PMIs for euro area and US are due out. In the euro area, we expect the manufacturing PMI to have fallen further to 50.7 in January. Beyond headwinds from the German car industry and political risks in France, we think there are downside risks due to the ongoing weakness in China, as well as weak external demand and fragile risk sentiments in financial markets. Later we have the policy announcement from the ECB and after that ECB President Mario Draghi’s press conference. We expect the debated growth risk assessment to take centre stage. At the previous meeting, the ECB coined the growth risk assessment as broadly balanced but moving to the downside. Since then we have seen a string of disappointing data. We expect questions from the audience on liquidity operations but no formal announcement until the March meeting.