The European recovery continues

The Day So Far

The EUR was off to a flying start in today’s session following the release of the latest PMI data which showed the strongest business activity in the Euro-zone since 2011. What is interesting is how the different asset classes are interpreting this strong economic performance with the EUR rallying on the premise of improving economic performance and an economy heating up with German inflation now back at its highest since August 2012. This translated into monetary policy may explain the growing view that in the near-future the ECB are likely to start discussing the idea of raising interest rates while also performing wide-scale QE, a very different normalisation strategy than what has been adopted by the Federal Reserve. For equities then the impact from the data today is less binary as the pick up in economic performance only leads to forward thinking on what the policy response many be from the central bank and that tightening has broadly been met negatively in the removal of a lower interest rate environment.

Moving back to the US and the big theme remains that of the on-going saga unfolding on Capitol Hill. As most expected a vote did not take place yesterday and reading the headlines President Trump is starting to turn the screws in threatening an ultimatum on either getting the deal done today or fear being stuck with Obamacare for the foreseeable future. As discussed here before the event has taken heightened importance for several reasons but at the core it is the markets perception that a failure on this front would have a clear impact on the markets confidence that the ‘Trump trade’ may not ever materialise fully or at least as quickly as markets had been expecting. Encapsulating this idea is the fact that funds invested in US stocks have seen a total of $9bln of withdrawals in the week up to March 22nd, which is the largest weekly redemption since immediately after the EU referendum last summer. In combination with this, and with Brexit about to begin and the French election looming, the VIX index has finally started to awaken from its slumber having crept above 13 for the first time since the end of 2016.

The Day Ahead

Quite rightly market conditions are a reflection of the uncertainty over the outcome of the House vote on the health care bill and there is a high likelihood that this afternoon mimics the type of choppy trading conditions that were apparent yesterday. As such pay close attention to the squawk and news feeds for any breaking developments but remember the ‘noise’ is likely to be loud and unless there is clear outright clarity on the vote either happening with good authority to pass, or the opposite, then I would advise steering away from the see-saw action that may ensue. In terms of the calendar we do have US durable goods data at 12.30pm with the respective service and manufacturing PMI’s for the US at 1.45pm. However, as discussed the importance lies with a deal getting done in the House with any delay likely to add to negative sentiment across assets.