Talking Points:
• Though it broke its consecutive sessions rally at 7 straight days, the S&P 500 (Dow, Nasdaq, etc) closed at a record
• The most effective market mover again this past week was President Trump which means more uncertainty ahead
• Top scheduled event risk includes Fed speeches, FOMC minutes, OECD forecasts, PMIs and Commons Brexit debate
See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.
The most impressive performance in the global markets of late is indisputably the rally in US equities. That said, the current source of that lift is one of the most volatile fuels the markets have depended on in years: updates by the US President on expected policy changes. This past week, amid a range of fundamental themes, course corrections on US political policy, US monetary policy and general appetite for risk trends managed to muscle out all other motivations. Yet of those three, only the outlook for the promised US tax reforms and fiscal stimulus plan would carry through to the end of the week.
We can see the waning influence of a growing Fed conviction in the Dollar's break from the S&P 500's pace. Despite a hefty rise in forecasts for a hike at the next FOMC gathering (March 15) and futures close to pricing in a greater probability of three hikes than two, the Greenback's rebound never found pace and suffered a remarkable correction around its most convincing support - a jump in CPI. For risk trends, it would seem the run from the Dow and other US equity indexes that it was a clear foundation for the markets. However, progress and pace between the US and global stock benchmarks was notably disparate. Furthermore, assets further out the risk curve were similarly facing restraint. That leaves us in an interesting position for the coming week. There are few high-profile events scheduled, and certainly little for risk or Fed speculation to find greater motivation relative to what was offered this past week. More than leave the market quiet, that can focus the risk on the erratic updates from the US President.
There are few official meetings on the President's agenda - and there is even less for guidance on those topics that matter most for market participants. Mentions of tax reform and infrastructure spending were made either during campaign speeches, social media updates or as an aside in an unrelated talk. Given the weight that this theme carries and the mercurial nature of its updates, it is important to be especially cautious over the coming week. The 10 percent rally from the major US indexes since the election and the nearly 3 percent charge since the tax reform was offered a loose time frame, shows not just sensitivity but also how much speculative reach there is. Depending on how far the market's have been pushed outside baseline fundamentals, a mere lack of updates may start to pull markets back. And, it is not difficult to see that productive theme draw on broader risk trends and the Dollar as well. Other event risk (Brexit debate in the Commons; US, Eurozone, Japanese PMIs; Fed speak; Hong Kong GDP; etc) should be monitored, but expectations for trade motivation held in check. We discuss the troubling period of calm ahead next week in this weekend Trading Video.
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