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Top 5 Things to Know in the Market on Wednesday, 15th January

By Geoffrey Smith -- It's here at last. The U.S. and China will finally sign their 'phase-1' trade deal at 11:30 in Washington, although comments by Treasury Secretary Steven Mnuchin late on Tuesday have acted as a sober reminder for markets that it's far from settling the underlying causes of the trade war. Elsewhere, Germany posted its slowest growth in six years and the U.K. seems certain to cut rates after inflation hit a 3-year low. Oil is also soft after a surprise increase in U.S. inventories, which may or may not be corroborated by official government data later. Meanwhile, Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC) face a tough task matching the pace set by JPMorgan (NYSE:JPM) and Citigroup's (NYSE:C) fourth-quarter earnings reports. Here's what you need to know in financial markets on Wednesday, 16th, January.

1. U.S., China to sign trade deal

The U.S. and China will finally sign their ‘phase-1’ trade deal in a ceremony in Washington scheduled for 11:30 AM ET (1630 GMT).

While the full text of the deal still hasn’t been released, reports suggest that China will commit to buy at least $200 billion U.S. goods and services over the next two years in return for the cancellation of U.S. import tariffs that had been scheduled for December and a partial rollback of other tariffs. This will still leave most of the U.S. measures taken since 2018 in place.

Late on Tuesday, Treasury Secretary Steven Mnuchin had told Reuters that there will be no further tariff cuts without further concessions from China, reminding markets that the underlying rivalry between the two countries – and specific concerns about Chinese IP theft and subsidies – are unlikely to disappear.

2. German growth hits six-year low

Germany recorded its slowest growth in six years in 2019, according to a preliminary estimate from the country’s statistics office. Destatis said gross domestic product growth slowed to only 0.6% from 1.5% in 2018.

That was largely as expected, but confirms the damage done to the export-sensitive economy by the U.S.-China trade war and by Brexit, which has hobbled Germany’s largest export market in Europe, the U.K.

The government said the industrial sector hadn’t yet overcome its “period of weakness” but pointed to signs of stabilization in manufacturing orders and output at the end of last year, and to sustained strength in construction. Another point to emerge from Destatis’ briefing was that Germany posted a budget surplus of 49.8 billion euros ($55.5 billion), or 1.9% of GDP.

3. Muted opening for stocks; Goldman, BoA results due

U.S. stock markets are set to open modestly lower in the wake of Mnuchin’s comments on Tuesday, which reminded participants of the limitations of the truce that’s due to be signed later.

By 6 AM ET (1100 GMT), Dow futures were down 13 points, less than 0.1%. S&P 500 Futures and the Nasdaq 100 contract were down by a similar amount.

Reports from Goldman Sachs, Bank of America, PNC Financial and U.S. Bancorp – all due before the opening -- should show whether the rock-solid performance of JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) in the fourth quarter extended to the whole sector.

UnitedHealth was the first major stock to report Wednesday, narrowly beating expectations for earnings per share on revenue roughly in line with forecast.

4. Weak CPI cements U.K. rate cut expectations

Money markets now view a 25-basis point interest rate cut by the Bank of England as a nailed-on certainty, after U.K. consumer inflation fell to a three-year low of 1.3% in December under the weight of electoral and Brexit-related uncertainty.

Michael Saunders, a Bank of England policymaker who has been pushing for a cut for two months already, said in a speech that the economy faces an extended period of subdued growth, creating a disinflationary and persistent output gap. He said the country needs a “relatively prompt and aggressive response.”

The pound bounced back above $1.30 against the dollar in the wake of the news.

5. Oil drifts near 6-week lows after stockpile increase

Crude oil prices stayed stuck near six-week lows in the wake of a surprise increase in U.S. inventories last week. The American Petroleum Industry reported that U.S. crude stocks rose by 1.1 million barrels last week, rather than the 750,000-barrel draw predicted for the official government data that will be released at 10:30 AM ET (1530 GMT).

The contango (discount) in U.S. crude futures – normally a sign of short-term oversupply – continued for a second day. Brent traded down 0.2% at $64.39 a barrel.

In addition to the inventories news, market participants have also become more cautious about Chinese demand in the wake of Mnuchin’s comments on Tuesday.

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