Politics overwhelms sentiment

Daily update

The killing of another US citizen in Minnesota by ICE forces has raised the risk of a partial government shutdown. Senate Democrats are resisting funding for the Department of Homeland Security without reform of ICE. The house is also in recess, and snowfall has closed the senate until at least Wednesday. A partial shutdown would be less disruptive than last year.
US President Trump has threatened 100% tariffs against Canada if it concludes a trade deal with China. Markets seem to have evolved their reaction to such threats. Previously, there was an expectation of a threat, brief implementation, and then retreat—with Trump dictating the timing. Now, the focus is whether senior members of the administration give credibility to the threat. If not, markets assume the threat will not progress beyond rhetoric.
The US dollar weakened, and gold rose in dollar terms. There is speculation about coordinated action in support of the yen, which has helped that currency specifically. The deterioration in the international standing of the US and recent domestic events may be corroding some of the perceived supports of the dollar’s reserve status.
The data calendar is sentiment focused—German ifo, US Dallas Fed manufacturing. US durable goods orders are also due. Data will be subordinate to the polarized and politicized environment.