Doubt over pace of reform brings rise in US shares to a juddering holt, was how the Financial Times market overview described the impact on financial markets Donald Trump’s first effort at reforming the healthcare bill had had. Possibly a slightly overdramatic however the FTSE 100, the S&P 500 and the eurofirst 300 all gave up around 1% on the week. The dollar lost ground against the euro and the yen, and yields on the 10-year treasury fell back to 2.4%. The Vix index suggested a little fear was returning as it closed the week just below 13, having started the week just above 11.
The healthcare bill is being described as a test case for how successful Tump will be at passing further bills. President after President has had trouble with restructuring the health system in the United Sates. Taxation and healthcare are not related, and the idea that one could impact the other feels a stretch, beyond sentiment. Equity markets are due a correction, they just rarely happen when the market is anticipating it.
The recent correction in the oil price is just as important to investor sentiment. Brent extended its run of losses on Friday, however it did manage to close the week above the psychological $50 a barrel. In a week that saw some reversal for risk assets, the price of gold rose $20 to close back up to $1248 an ounce.
Trump and Brexit have dominated headlines ever since both events, and this week is likely to be a continuation as Theresa May is expected to announce the triggering of article 50 on Wednesday. Let the games begin as negotiations will now commence in earnest.
We commented this week on the importance of Purchasing Managers Surveys for the outlook to economic growth. On Friday Markit Research released their flash March estimates for the euro area. The estimates all came in above expectations, suggesting that the recovery in the euro area continues. There will be more data out this week from the region including March’s Ifo business climate in Germany, and Business Confidence, which has been steadily climbing since this time last year, is expected to do so again this week.
This week we get on Thursday and Friday respectively the final estimate of US and UK GDP for the fourth quarter of 2016. Expectations are that growth in the world’s largest economy is going to be revised modestly upwards. Consumer confidence is another indication of the strength of an underlying economy. On Tuesday, the Conference Board are expected to report that US consumer confidence has slipped. On Thursday UK consumer confidence is also expected to show another drop. This slip in confidence is probably a reflection on the squeeze on the purse the recent pickup in inflation has had.
Finally Frank Investments is once again appearing on share radio at 755 this morning. If you want to hear first hand how equity markets might fare in the week ahead.