The US equity rallied on Friday, while the US bond market continued the modest sell-off on Friday. The 10Y US Treasury bond yield has risen some 10bp since Monday last week, while the S&P 400 is up almost 7% since the start of the year. The gains on Friday in the US equity market were driven by expectations the US and China might reach a deal on trade. On Saturday, US President Trump made some ‘tweaks’ to his proposal on the border wall. However, the Democrats rejected the proposal and thus the government shutdown continues. Even though the new proposal does not offer an ending to the government shutdown, it may be a new start for negotiations between Democrats and Republicans.

The US market will be closed today due to it being Martin Luther King Day and there are few economic data releases. The main event this week will be the ECB, BoJ and Norges Bank meetings, although neither the ECB or the Bank of Japan are expected to make any changes to their current policy stance. In terms of data releases, we are looking forward to the preliminary PMIs for euro area, Japan and the US on Thursday.

Today’s most important event comes from the UK, where PM Theresa May is expected to put forward her Brexit plan B to the House of Commons (the motion is amendable). However, at a cabinet meeting on Sunday, Theresa May stated according to people attending the meeting that there was little prospect of cross-party meetings yielding an alternative to the plan that was rejected last week. Instead, she said that she would seek changes to the Irish backstop session with the EU. Hence, uncertainty is very much alive given that the EU has ruled out a reopening of the deal. This will most likely be negative for GBP this morning.