Originally published by Rivkin Securities
On Friday Republicans withdrew their scheduled vote to repeal and replace Obamacare in what is the Trump administration’s first major defeat. The market had begun pricing in this outcome the days prior so the reaction was fairly muted although US equities did close off their lows. This highlights relief by investors that the Trump administration can now focus entirely on tax reforms, deregulation and fiscal stimulus measures. The S&P 500 finished -0.08% lower while the Nasdaq 100 was +0.17% higher, the US Dollar Index weakened -0.15% and US treasury yields were little changed.
Elsewhere we had a few key Fed speakers on Friday stressing the gradual path of future rate hikes. St. Louis Fed president James Bullard suggesting that the Fed’s future projections may be “overkill”. New York’s William Dudley who is a permanent voter on the committee, stressed that the Fed has continued to raise rates gradually to achieve a “soft landing”.
Weighing on the US dollar was the euro which gained +0.16% on Friday and is up a further +0.35% in early trade this morning following positive French GDP and Eurozone PMI figures on Friday. For the fourth quarter the French economy expanded at +0.4% as forecast, growing +1.1% year-on-year as expected. This extends the recent broadening recovery we have seen in the Eurozone and should add further evidence that the ECB will likely begin to taper stimulus in December 2017.
The flash Markit PMI report (MoM Mar) highlighted that the Eurozone economy continues to gain some momentum that should be sustained into the second quarter. The composite reading rose to 56.7 higher than the 55.8 forecast and prior reading of 56. Importantly price pressures continue to build which is positive for inflation and employment saw the largest monthly improvement since 2007. European equity markets generally finished lower, the Euro STOXX 600 down -0.18% as did the CAC 40 down -0.24% while the DAX outperformed up +0.20%.
In the commodity space the Baker Hughes US rig count rose to 652 from 631 as more US production comes online. Still sellers were unable to drive prices lower on Friday with both WTI and Brent crude finishing +0.57% and +0.47% higher. As highlighted last week and shown on the chart below, from a technical aspect new lows have not been confirmed by momentum indicators forming a bullish momentum divergence. This suggests the strength of declines are fading and the heightened risk that we may see a short sharp bounce in the near-term.
Locally the S&P/ASX 200 index finished +45.59 points or +0.80% higher on Friday although we look set for a flat open with ASX SPI200 futures up +1 point at the close of trade on Friday.
Data releases:
· BOJ Summary of Opinions (March 15-16 Meeting) 10:50am
· German IFO Business Survey (MoM Mar) 7:00pm AEDT
· Chicago Fed’s Evans speaking on economy and policy In Madrid 3:45am & 4:15am
Chart 1 – WTI Crude Oil
