US government funding deadline, UK inflation, China GDP

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Hello, and welcome to the Week Ahead from the Financial Times in London. Here are some of the big stories we'll be watching in the coming days.

It's crunch time as funding for the US government is set to expire. We'll have economic indicators from both the UK and China, and several of the biggest US banks are set to report their fourth-quarter results.

Let's start in the US, where the government is heading towards another potential shutdown crisis. January 19 is the deadline when current government funding expires, and Washington has again left it to the last minute to work out a deal. Congress avoided a crisis just before Christmas by extending the deadline for a few weeks, but another extension is unlikely.

The political holdup is that some lawmakers want to use the spending bill as a vehicle for a series of other policy measures, but Republicans and Democrats cannot agree on what those policy measures should be.

It's a problem for President Donald Trump, who ended 2017 on a triumphant note, as Congress passed a big tax reform bill. The main issue standing in the way of the government funding bill are children's healthcare spending, disaster relief money, and immigration. Here's Barney Jopson with more on how immigration is playing into the standoff.

President Donald Trump may face a moment of reckoning on immigration this week. He's been acting tough on the subject since he came to office, but he's also made comments that suggest a softening, maybe, in the offing.

At issue is the fate of 800,000 so-called dreamers, people who were brought to the US illegally as children. President Obama sought to protect them from deportation, but Mr Trump has undone Obama's move, and those people are now in danger. More recently, though, the president said that he wants Congress to act to help them.

And this is all coming to a head next week because Democrats would like Congress to pass a bill to help the dreamers at the same time as it passes a bill to keep the government funded. Mr Trump has said he'll sign whatever lawmakers send to him, but his lack of direction is making it harder for Congress to reach a deal.

Now, we'll have economic indicators from both the UK and China next week. On Tuesday, the UK'S Office for National Statistics will publish an official estimate for inflation in the year to December. With inflation already reaching 3.1% in November, 1 percentage point above the Bank of England's target, Bank of England governor Mark Carney will have to write a letter to the chancellor explaining why. Here's our economics correspondent Gemma Tetlow with more.

Inflation has so far been the clearest economic effect of the UK's vote to leave the EU. Since the Brexit referendum in 2016, the pound has depreciated quite a bit. That's fed through into an increase in import prices and higher prices in the shops. But economists think that this process has probably now reached its peak. We've seen a big increase in prices of clothes and household goods, but that's likely to start dropping back as the months go on.

December's figure, which is coming out this week, may not be that much below November's 3.1% because higher oil prices at the end of last year are putting further upward pressure on prices. But going through 2018, inflation figures are likely to come down quite sharply.

And on Thursday, China will report gross domestic product data for the fourth quarter. The headline figure's expected to be around 6.8%, but additional figures will offer valuable clues for how much momentum the world's second largest economy had entering the new year.

China's economy beat expectations in 2017, but many analysts believe that two key growth drivers, real estate and infrastructure, are both facing headwinds this year.

And finally, we'll get a health check on some of the biggest US banks with Citigroup, Goldman Sachs, Bank of America, and Morgan Stanley all due to report their fourth-quarter results next week. But the recent overhaul of tax laws, the first in decades, means the figures for the period will be particularly messy, full of one-off charges, accelerated expenses, and one-time bonuses to staff.

That said, analysts will be watching for trends for trading, loan growth, and interest margins while grilling executives on the prospects for regulatory relief in the second year of the Trump administration. Here's Ben McLannahan with more.

It's clear that the big tax reform passed by the US government before Christmas is good news for the banks over the long term, as the headline rate of corporate taxation drops from 35% to 21%.

But in the short term, there's lots of one-off hits that the banks are going to have to get to grips with, mainly connected to the valuation of deferred tax assets, which are a kind of tax credit saved up from previous losses. There's also the repatriation tax. That's a new levy on profits stashed overseas. The government tried to encourage them to bring it back here. And all these one-off adjustments, all these one-off payments that the banks were making just after the tax was announced.

And beneath that, I'll be trying to get some clarity on loan growth, in particular, because it's been disappointing under President Trump so far, commercial and industrial loan growth in particular.

And the second main theme underneath all this tax stuff will be net interest margins. That's the gap between the yields on banks' assets and the rates they pay for funding. It should, in theory, be going up. Let's have a look.

And that's what the Week Ahead looks like from the Financial Times in London. See you again next time.