St. Patrick drove the snakes from Ireland, used the shamrock to explain the holy trinity and turned his walking sticks into living trees. For all that we celebrate today and perhaps much of the week ahead.

Markets wait for the backstop issue for Brexit to be driven off the Irish Isle in a similar fashion to the snakes. Saints are celebrated for their miracles and that is what we all need to believe in given the global issues from climate change to renewed nationalism to social inequality and declining trust in democratic institutions. The search for saints is underway and the modern version has been found for investors in the guise of central bankers.  

Next week brings the best of the FOMC Powell patience and that of the Bank of England Carney as they try via a bevy of tools to ratchet up economic confidence amidst the gloom of delays in US/China trade talks and EU/UK separation. Throw in more troubling issues like India/Pakistan missile threats and North Korea returning to missile tests and you have a mess of geopolitical concerns.

Of course there central bankers at work to offset these fears with supporting roles in the decisions of the SNB, the Indonesian and Russian central banks as well. Delays are normal in the path to sainthood, we all get that, but a sequence of them erodes the miracle they delivered with the new tools of modern monetary theory, pushing markets to reflect on democracy and voters to question their governments.  

Green protests first with students, then in France are one signal, the lack of consensus in UK Parliament on what to do about leaving the EU or another referendum on the topic are another, while US politics saw Trump use his first veto as Senate Republicans pushed back on emerging powers to fund his Wall. 

Markets were upbeat on hopes that the ECB TLTRO III (affectionately called infinity) mixed with talk of more China stimulus and more US/China trade deal hopes to lift markets from any fears about 1Q growth weakness. Goldilocks lives with the FOMC Powell pause porridge and the Carney promises to act on Brexit chaos. What happens when markets suspend their belief in the central bankers may be the question to ask for those inclined to be bearish and doubt future hopes against present pains. 

The Edelman Trust Barometer is worth highlighting again as markets face the last 2 weeks of March and the end of the first quarter for 2019. There is a growing divide in how institutional trust plays out given the present economic soft-patch. Markets such as the U.S., UK, Canada, South Korea and Hong Kong saw trust gains of 12 points or more among the informed public. In 18 markets, there is now a double-digit trust gap between the informed public and the mass population.

The other key point for the week ahead revolves around the GBP which gained last week even in the face of ugly UK politics and ongoing uncertainty around Brexit paths. This optimism will be tested and threatened on a break of 1.2950 should the “perfect path” toward not leaving the EU or at least delaying further than June prove impossible. 

Question for the Week Ahead: What matters most to the FOMC and will they shift market outlooks accordingly?  

The new Powell Fed has shifted quickly from normalization to patience. The soft patch of 4Q growth is not expected to get worse into 1Q. The ability for the FOMC to keep rate policy relevant to markets rests on their tweaking expectations. The path of the FOMC dot-plot, the forecast changes for growth and inflation and the tone of the statement will all be dissected for some evidence that the FOMC is the floor for rates rather than the ceiling.The expectations of the market for 2020 rate cuts is growth dependent and how the dot-plot comes out will set the tone for holding this course or accelerating it. 

The other key focus for markets is on the balance sheet. The QE phase of policy led to an expansion to $4.5 trillion and then since October 2017, the reversal of it (affectionately called QT) has pushed it back to $4.0 trillion. The open expectation is that the FOMC will set a new target for rolling it down which stops at the end of 2019 and settles near $3.5 trillion. The composition of this will matters significantly. The US 3-5Y and 2-5Y curve inversions are in play with the US deficit and Treasury issuance plans.  

Finally, the tools that the FOMC chose to emphasize in the battle against market gloom will be under investigation – as the role of the USD, the TIPS B/E and the shape of the curve play out against forward guidance, data dependency, new transparency from more Powell press conferences and perhaps a new inflation target twist. The rise in 10Y breakeven inflation rates (up 20bps or so) suggest the FOMC should be happy with their patience but anchoring such requires some focus on financial conditions and here is the rub where the Powell put also has a call to pay for the patience – this ceiling in the S&P500 maybe in play for next week.  

Market Recap:

US/China talks continue but final deal hopes are pushed out. UK Brexit fears of a hard exit continue to unwind with delay vote putting the ball in EU hands and with some hope for a  second referendum and no exit. The UK May failure to gain Parliamentary support has led to support for a delay. The EU will temper the duration for such given the EU election requirements and doubts that more time builds a better consensus for a path forward. Many fear delays will hurt investment plans both in the EU and UK.

The Japan GDP revision wasn’t enough to sway the BOJ and its kept its policy unchanged even as it warned on softer forecasts and global uncertainty. China shares gained with more pledges for support as the economic data continued to miss growth expectations. China industrial production for Jan-Feb was 5.3% y/y – worst since 2002. The unemployment rate rose to a 2-year high of 5.3%.

In EM, India stocks rally near record highs this week as Modi holds gains in polls (elections go from April to May). Brazil also saw gains with optimism over pension reform driving, with a key lower house vote due in early summer.  The Argentina central bank had to raise rates further given the override of inflation there, trying to stem ARS weakness. New Zealand suffered a mosque shooting in Christchurch where 49 people were killed by an Australian gunman, this led to a push by the PM for stricter gun laws.  

The US data was mixed this week – Michigan sentimen rose 3.4 to 97.8 in March preliminary, the Empire State Manufacturing survey fell 5.1 to 3.8, new home sales fell 6.9% to 607,000 in January, weekly claims rose 6,000 to 229,000, US durable goods were up 0.4% - better than the -0.5% drop expected, ex transport -0.1%, but ex defense up 0.7%. The core capex orders were up 0.8% m/m, 4.1% y/y. 

Equities:

The MSCI all-country World Index rose 2.79% on the week. The MSCI EM Index rose 2.64% on the week.  US markets led the bounce with India and France while UK and Australia lagged.

• The US S&P500 rose 2.89% to 2,822.48 on the week– closes at 5-month highs on global growth hopes and 1Q options expiry.  Technology led with Apple new video streaming service hopes and with Nvidia graphics chip jumping. The DJIA rose 1.57% to 25,709.94 on the week with focus on Boeing post Ethiopia Air tragedy and 737 Max 8 plane groundings. The NASDAQ rose 4.15% to 7,306.99 on the week – also at 5-month highs. The Cboe VIX fell 3.17pp or 19.75% to 12.88% on the week – also 5-month lows. 
• The Stoxx Europe 600 rose 2.84% to 381.10 on the week. The German DAX rose 1.99% to 11,685.69 on the week. The French CAC40 rose 3.33% to 5,405.32 on the week.  The UK FTSE rose 1.74% to 7,228.28 on the week. The Italian FTSE MIB rose 2.74% to 21,045.41 on the week.
• The MSCI Asia Pacific index rose 1.83% to 158.95 on the week. The Japan Nikkei 225 rose 2.02% to 21,450.85 on the week. The Hong Kong Hang Seng rose 2.78% to 29,012.26 on the week. The China Shanghai Composite rose 1.75% to 3,021.75 on the week. The India Nifty rose 3.55% to 11,426.85 on the week. The Korea Kospi rose 1.81% to 2,176.11 on the week. The Australia ASX fell 0.35% to 6,265.10 on the week.  

Fixed Income:

The US bond 10-year yields touched 2019 lows on Friday after China trade worries, US CPI being lower than feared and a strong demand for US bonds as shown in the auctions. The 2.60% yield level is seen as a key pivot for 2.45% risks. Corporate bond issuance was steady and slightly larger than expected this last week. HY paper was firm with focus on new deals and inflows as chasing yields returns as a key part of asset management. The EU markets were all about digesting TLTRO-III and concluding that its best for Italy and perhaps Portugal and Spain – depending on politics. Japan managed to ignore another BOJ meeting with the longer end of the JGB market still looking for flattening despite them. 

• US bonds see curve kink further after reasonable auctions, mixed data for the week: 2Y 2.44% off 2bps, 3Y 2.39% off 5bps, 5Y 2.40% off 3bps, 7Y 2.49% off 2bps, 10Y 2.59% off 3bps, 30Y 3.02% off 1bps.
• Canadian 10-year bond yields fell 5bps to 1.72% on the week– with politics, data and oil all driving still. 
• Japan JGB see curve bull steep, BOJ shifts forecasts lower, on the week:  2Y -0.16% off 2bps, 5Y -0.16% off 1bps, 10Y -0.04% off 1bsp, 30Y 0.58% flat – BOJ dovish but not acting, data mixed.
• Australian bonds rally further with growth doubts for the week:  3Y 1.54% off 5bps, 10Y 1.96% off 7bps, breaking 2% key – NZ 10Y 2.10% flat on week. 
• China bonds see curve flatten, waiting for PBOC and trade deal, on the week: 2Y 2.83% up 3bps, 5Y 3.02% flat, 10Y 3.15% off 2bpst.
• UK Gilts see curve flatten with better data, Brexit delay expectations,for the week: 5Y 0.94% up 3bps, 10Y 1.21% up 2bps, 30Y 1.72% up 2bps. 
• German Bunds see curve bear steepen with risk-on mood, for the week:  2Y -0.53% flat, 5Y -0.37% up 1bp, 10Y 0.08% up 1bp, 30Y 0.75% up 3bps. 
• French OATs sold on better growth outlook, 10-year up 5bps to 0.46% on the week. 
• Italian bonds steady with modest curve flatteningfor the week: 5Y 1.44% up 1bp, 10Y 2.52% up 1bp, 30Y 3.57% off 2bps
• Spanish 10-year bond yields up 2bps to 1.20% on the week– focus is on election and ECB/growth
• Portugal 10-year bond yields drop 5bps to 1.31% on the week– ECB and growth focus with politics still heating up
• Greek 10-year bond yields rose 2bps to 3.80% on the week– focus is on growth/politics and ECB. 

Foreign Exchange:

The US dollar index fell 0.75% to 96.60 on the week.  Focus was on UK Brexit votes, US rates, and global growth. In emerging markets, the USD was mostly weaker for the week: EMEA: ZAR up 0.15% to 14.409, RUB up 2.3% to 64.793, TRY off 0.35% to 5.445; ASIA: INR up 1.5% to 68.938, KRW off 0.15% to 1134.70, CNY 6.712 up 0.2%; LATAM: MXN up 1.51% to 19.20; BRL up 1.4% to 3.813; ARS up 2.7% to 39.98. 

• EUR: 1.1330 up 0.75% on the week with 1.12 and 1.1250 now bases for 1.1380 and 1.1420 revolving around FOMC and rates.
• JPY: 111.40 up 0.25% on the week and EUR/JPY 126.15 up 1.1% on the week – with risk-on driving – BOJ on hold sounding dovish and 110-112 holding. 
• GBP: 1.3300 up 2.1% on the week and EUR/GBP 0.8515 off 1.3% on the week. All about delays and hope for seconnd referendum with no Brexit – with 1.33 opening 1.36-1.40 zone next. 
• CHF: 1.0020 off 0.6% on the week and EUR/CHF 1.1345 up 0.2% - risk-on with focus on ECB/SNB still and 1.00 pivot for .9880 or 1.02
• AUD: 0.7090 up 0.6% on the week with focus on .7050 still and RBA policy reaction to weaker data; NZD .6845 up 0.6% with focus on the Christchurch tragedy.
• CAD: 1.3335 off 0.6% on the week with BOC and growth focus, CPI key next with 1.3250 base for 1.3450 still. 

Commodities:

The S&P/GSCI total return index rose 2.32% to 2,521.23 on the week. Winners last week were Hogs, OJ and Wheat while NatGas, Feeder Cattle and Lumber lagged. 

• Oil $58.52 up 4.37% on the week, Brent $67.16 up 2.16% with US supply lees important than demand and OPEC/IEA reports – Venezuela and China key focus. WTI watching $58 base for $60 but Brent needs $68 break first for momentum
• Gold: $1301.15 up 0.25% on the week with $1286 and $1310 back in play as guideposts, USD weakness key. Silver $15.277 off 0.2% on the week with $15.50 key. Platinum $828 up 1.6% on the week while Palladium $1560 up 3%. 
• Corn: $373.25 up 5.2% on the week– payback for trade, weather, Wheat $462.525 up 6.8% on the week, Soybeans $909.25 up 2.9% on the week. 
• Copper: $2.9255 up 0.5% on the week but with May futures off 0.43% to $2.9070. Iron Ore April futures rose 0.3% to $84.43 on the week despite weaker China data. 

Calendar for the Week Ahead:

Beyond the key FOMC and BOE decisions, markets will have to navigate the important releases of US factory orders, flash PMI, existing home sales; for the UK its about jobs, wages, retail sales and CPI; for Europe its about flash PMIs; Japan gets trade, inflation and its manufacturing flash PMI and for Australia unemployment and labor costs along with home prices. All of these are cloaked with the race to the vote in Spain, Thailand and the ongoing Brexit and US/China trade discussions. 

Monday, March 18: Japan trade, US NAHB housing index. 

• 0650 pm Japan Feb trade -Y1.415trn p +Y200bn e / exports (y/y) -8.4%p -0.9%e / imports -0.6%p -5.8%e
• 1130 pm Japan Jan final industrial production (m/m) -0.1%p -3.7%e (y/y) -1.9%p 0%e
• 0500 am Eurozone Jan trade surplus E17bnp –E8bn e / s.a. E15.6bn p E13.2bn e
• 0600 am German Bundesbank monthly report
• 0815 am ECB Guindos speech
• 0900 am US Mar NAHB housing index 62p 63e
• 1010 am ECB Paet speech

Tuesday, March 19:Australia RBA minutes, house prices, UK jobs, German ZEW, US factory orders

• 0500 pm RBA Kent speech
• 0530 pm Australia Feb Westpac LEI 0%p -0.1%e
• 0830 pm Australia 4Q house price index (q/q) -1.5%p -2%e (y/y) -1.9%p -0.4%e
• 0830 pm Australia RBA meeting minutes – focus on housing discussion
• 0500 am Italy trade balance E3.658bn p E2.062bn e
• 0530 am UK Feb claimant count 14,200p 2,700e / ILO Nov-Jan unemployment rate 4%p 4%e / Wages Nov-Jan ex bounus 3.4%p 3.4%e / with bonus 3.4%p 3.2%e
• 0500 am German Mar ZEW economic sentiment -13.4p -11e / current conditions 15p 11.2e 
• 0535 am ECB Praet speech
• 0600 am Eurozone Jan construction output (y/y) 0.7%p 2.1%e
• 0600 am Eurozone 4Q labor cost index 2.5%p 2.7%e / wages 2.4%p 2.5%e
• 0600 am Eurozone Mar ZEW economic sentiment -16.6p -18.7e
• 0900 am US Jan factory orders (m/m) 0.1%p 0.3%e /ex trans -0.6%p +0.3%e
• 0130 pm BOE Sharp speech
• 0430 pm US weekly API crude oil inventories -2.58mb p +1mb e

Wednesday, March 20: BOJ meeting minutes, German PPI, UK CPI/PPI, FOMC rate decision, COPOM rate decision

• 0400 pm Korea Feb PPI (m/m) -0.2%p -0.1%e (y/y) 0.2%p -0.6%e
• 0545 pm New Zealand 4Q C/A deficit NZ$6.1bn p NZ$3.5bn e / % of GDP -3.6%p 3.4%e 
• 0600 pm Japan Mar Reuters Tankan 13p 14e
• 0650 pm Japan BOJ policy meeting minutes
• 0700 pm RBA Bullock speech
• 1200 am Japan Jan final LEI 97.5p 95.9e / coincident 101.8p 97.9e
• 0300 am German Feb PPI (m/m) 0.4%p 0.2%e (y/y) 2.6%p 2.9%e
• 0500 am Italy Jan construction output (y/y) -1.3%p -0.6%e
• 0530 am UK Feb CPI (m/m) -0.8%p +0.4%e (y/y) 1.8%p 1.8%e / core 1.9%p 1.9%e / RPI 2.5%p 2.5%e
• 0530 am UK Feb PPI output (m/m) 0%p -0.1%e (y/y) 2.1%p 2.3%e / core 2.4%p 2.3%e / input 2.9%p 4.3%e
• 0640 am German 5Y BOBL auction -0.36%p
• 0700 am UK Mar CBI industrial trends orders 6p 5e
• 1030 am US weekly EIA crude oil inventory -3.862mb p +1.6mb e
• 0200 pm US FOMC statement – no change from 2.5% expected / economic projections (dot plot)
• 0400 pm Brazil COPOM rate decision – no change from 6.5% expected. 

Thursday, March 21:  Japan Spring holiday, UK Brexit vote, EU vote on UK extension, Indonesia rate decision, SNB, BOE, Australia jobs, UK retail sales, US Philly Fed, EU consumer confidence flash.

• 0730 pm Australia Feb jobs 39,100p 14,500e / unemployment 5%p 5%e / participation 65.7%p 65.7%e
• 0230 am Indonesia central bank rate decision – no change from 6% expected
• 0430 am SNB rate decision – no change from -0.75% expected.
• 0500 am ECB monthly bulletin
• 0500 am Spain Jan trade deficit E3.25bn p E3.2bn e
• 0530 am UK Feb Public Sector Net Borrowing (PSNB) GBP15.759bn p E0.5bn e
• 0530 am UK Feb retail sales (m/m) 1%p -0.3%e (y/y) 4.2%p 3.3%e / ex fuel 4.1%p 3.4%e
• 0540 am Spain 3-5-10Y Bono sale
• 0600 am France 3-5Y BTAN sale
• 0800 am BOE rate decision – no change from 0.75% expected
• 0830 am Canada Feb ADP employment change 35,400p 25,000e
• 0830 am Canada Jan wholesale sales 0.3%p -0.1%e
• 0830 am US weekly jobless claims 229,000p 226,000e
• 0830 am US Mar Philly Fed Manufacturing -4.1p +5e
• 1000 am US Feb conference board LEI 0%p 0.1%e
• 1100 am Eurozone Mar flash consumer confidence -7.4p -7.4e
• 0100 pm US 10Y TIPS sale  

Friday, March 22: Flash PMI for Australia, Japan, Europe, US. Japan CPI, Russia rate decision, Canada CPI, retail sales, US exiting home sales

• 0500 pm Australia Mar flash CBA composite PMI 49.1p 48.3e / manufacturing 52.9p 52.3e / services 48.7p 48.5e
• 0630 pm Japan Feb CPI (y/y) 0.2%p 0.3%e / core 0.8%p 0.8%e / core-core 0.4%p 0.3%e
• 0730 pm Japan Mar flash manufacturing PMI 48.9p 49.2p
• 0315 am ECB Guindos speech
• 0330 am ECB Angeloni speech
• 0415 am France Mar flash composite PMI 50.4p 50.7e / manufacturing 51.5p 51.5e / services 50.2p 50.8e
• 0430 am German Mar flash composite PMI 52.8p 52.7e / manufacturing 47.6p 48.1e / services 55.3p 54.8e
• 0500 am Eurozone Mar flash composite PMI 51.9p 52e / manufacturing 49.3p 49.5e / services 52.8p 52.7e
• 0615 am ECB Mersch speech
• 0630 am Russian central bank decision no change from 7.75% expected.
• 0830 am Canada Feb CPI (m/m) 0.1%p 0.6%e (y/y) 1.4%p 1.5%e / core 1.5%p 1.5%e
• 0830 am Canada Feb retail sales (m/m) -0.1%p +0.4%e /ex autos -0.5%p +0.2%e
• 0930 am Atlanta Fed Bostic
• 0945 am US Mar flash composite PMI 55.5p 55.2e / manufacturing 53p 53.7e / services 56p 56e
• 1000 am US Feb existing home sales (m/m) -1.2%p +2.2%e / 4.94m p 5.1m e
• 1000 am US Jan wholesale inventories (m/m) 1.1%p 0.3%e
• 0100 pm US Feb Treasury budget statement $9bn p -$22bn e

Conclusions: What is the best indicator for watching the US economy into 2Q?  

Markets have all but conceded that 1Q is soft everywhere. The China data last week underwhelmed but the government promises for more stimulus were enough to hold and goose stocks higher there. The EU has the TLTRO-III from the ECB to counter any of the gloom from weaker data and many are hoping for more stability from the flash PMI reports ahead.  

The US is the tie-breaker in this game of chicken for market moods and here is where forward looking data becomes all important. The present weakness of the Atlanta Fed GDPNow calculation hasn’t really hit the market expectations given the noise of inventories, trade and weather along with the US government shutdown.  Calculating 1Q GDP at 1-1.5% still is the noise range where as 0.5% or lower as the data so far collected suggest would be a scare. 

So the way March plays out for data matters and with it the value games for US and global markets. The USD looks a tad expensive given the rate of US inflation and the slowing growth. The US bond markets look stuck but at 2.45% rather than 2.60% they would be fully reflecting a FOMC needing to act rather than wait on the economic weakness. The US stock market seems out of line to the -3.6% earnings expectations and the more difficult politics ahead. The sector by sector buy/sell/hold recommendations could be in play and part of the bigger picture cycle watch and signal for 2Q. 

However, the biggest data point that seems to hit markets and not matter much is the weekly jobless claims. This maybe the front line for trouble given that jobs are near record highs across all sorts of metrics from JOLTS.The weekly claims are running a 4-week average near flat to February. Watching job data remains the best way to judge policy shift-risks in the weeks and quarter ahead.