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How Will Markets React to a U.S. Tariff on Mexico?

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Trump edges toward a trade war, U.S. GDP is due, and earnings season continues. Here are some of the things people in markets are talking about today.

Trade spat

A week is a long time in politics, with President Donald Trump now seemingly on the cusp of a trade war with one of his country's biggest trading partners only seven days after his inauguration. The cancellation of a proposed meeting between Mexican President Enrique Pena Nieto and the POTUS via Trump's personal Twitter account — chased up with threats to impose a 20 percent tariff on Mexican imports — has put further pressure on the peso

Earnings

Alphabet Inc.'s revenue beat analysts' estimates, but its profits per share missed expectations due to the company paying a much larger tax rate than anticipated. Alphabet, along with Microsoft Corp. and Intel Corp., which also reported results yesterday, continue to show that cloud services remain the biggest growth area in tech. In Europe, UBS Group AG kicked off a run of bank earnings releases this morning saying all its money-management units saw net redemptions in the last quarter. Shares in the bank were 3.2 percent lower by 5:22 a.m. ET.

U.S. GDP

The economy is expected to have ended 2016 with a 2.2 percent annualized growth rate, according to the median estimate of economists in a Bloomberg survey. While that would be fairly typical of the country's Obama-era expansion, it is far below the level promised by President Trump, who is looking to introduce protectionist policies and prune regulations to boost the economy. Fourth-quarter gross domestic product data will be released at 8:30 a.m. ET.

Markets slip

Overnight, the MSCI Asia Pacific Index was broadly unchanged while Japan's Topix index closed 0.3 percent higher. In Europe, the Stoxx 600 Index had slipped 0.5 percent by 5:33 a.m. ET, with banks leading the losses following the UBS results. S&P 500 futures are pointing to a lower open.

Coming up...

While GDP is the big number of the day, durable goods orders for December are also released at 8:30 a.m. ET, and may show a recovery from November's -4.5 percent print. At 10:00 a.m. the latest University of Michigan sentiment numbers will be published. Also worth watching will be developments in Greece following failure  to agree on a way forward at the latest Eurogroup meeting. 

What we've been reading 

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