Risk aversion was the dominate theme last week on reverse Trump trade. DJIA suffered the biggest decline this year and lost -317.9 pts or 1.51% to close at 20596.72. S&P 500 dropped -34.27 pts or 1.44% to close at 2343.98. Treasury yield followed with 10 year yield losing -0.101 to close at 2.400. Dollar index dive through 100 handle to close at 99.62, down from prior week's close at 100.31. In the currency markets, Yen was the biggest winner last week on risk aversion and falling yields. Swiss Franc closely followed as the second strongest major currency. Dollar weakened against European majors and Yen but ended up against Aussie and Canadian Dollar. The two were the weakest major currencies last week. In other markets, Gold extended recent rise from 1194.5 and closed at 1248.5, but kept below resistance at 1264.9. WTI crude oil continued to stay in sideway consolidation between 47/50.
Trump failed first Congressional Test
It should be reiterated the rallies in stocks and yields since the US presidential elections last year were based on anticipation of US president Donald Trump's expansive policies. Those policies include tax cuts as well as infrastructure spending. However, such assumptions were in serious doubt last week ahead of the "vote" on Trump's heath care act in House. There were talks that Trump couldn't get enough support even from Republican controlled House to pass the bill to repeal Obamacare. And indeed, the vote was firstly delayed from Thursday to Friday and then pulled because of insufficient support. The result somehow justified the selloff in stocks in the middle of the week.
Markets undecided after the failure
However, it should also be noted that markets were relatively steady on Friday before close. DJIA just lost -0.29% on Friday while S&P 500 lost -0.08%. There were talks that the situation now makes it more difficult for Trump to push through agendas on tax and fiscal stimulus. On the other hand, there were also talks that with healthcare off the table, Trump would expedite the agendas on tax and stimulus. These are two contradictory interpretations on the situations and we're yet to see which side the markets take. Nonetheless, technically, more downside is expected in stocks, yields as well as the greenback (to be covered later).
UK to trigger Brexit finally
A major focus this week is that UK Prime Minister Theresa May will finally trigger Article 50 for Brexit on Wednesday, March 29. Ahead of that, EU leaders gathered in Rome during the weekend to reinforce unity. EU President Donald Tusk said that "Europe as a political entity will either be united, or will not be at all". And, "only a united Europe can be a sovereign Europe." EC President Jean-Claude Juncker said on Friday that UK will need to pay roughly GBP 50b for leaving the Union. But Juncker emphasized that "the British government and parliament took on certain commitments as EU members and they must be honored". And, "this isn't a punishment or sanctions against the U.K." That is expected to be a key sticking point in the negotiation. Meanwhile, the news on Brexit so far should be well priced in. Thus, while's it a focus, it may not be that market moving.
The week ahead is not too busy with some important economic data scheduled. But trading could be a bit subdued ahead of quarter end. The economic data to watch include German Ifo on Monday, US trade balance and consumer confidence and Tuesday. US Q4 GDP final on Thursday, Japan CPI UK Q4 GDP final, Eurozone CPI and US PCE on Friday.