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Traders digest Flash PMI while awaiting big Trump test and EU Summit

World markets have been eerily quiet overnight as though traders are standing on a precipice trying to figure out which way to leap. US markets are trading up 0.15% making back yesterday’s late decline. The FTSE and Dax are down 0.1% while the CAD and IBEX are down 0.3%. Currencies are mixed with the Euro and USD up slightly while gold, JPY, GBP and CAD are down slightly. In commodities, crude oil is up 0.6% while copper is down 0.5%.

Mixed markets may be a reflection of mixed news flow and traders awaiting bigger developments. Flash manufacturing and service PMI reports for Germany, France and Japan all came in better than expected and indicate the world economy has continued to accelerate so far in March. On the other hand, the ECB said talk of exiting stimulus was premature and the Bank of Japan confirmed its commitment to ongoing monetary support for Japan’s economy. 

The big news everyone appears to be waiting for is the US House of Representatives vote on health care reform. Rejecting offers to continue negotiating through the weekend, last night President Trump declared negotiations on the bill are over and demanded the house vote on the bill today. It remains unclear if the Republicans have enough votes within their own caucus to pass the bill with Democrats set to unanimously reject it.  

With markets having rallied so much in recent months on anticipation that Republican control of Congress would mean a smooth and speedy reform process, today’s vote represents a big test of market assumptions. A defeat could be seen as a big setback but it could also open the door for the Administration to move on to tax reform. Still, even if that happens, the risk future initiatives could run aground on squabbles among Republicans let alone the opposition from other parties may increase going forward. 

If the bill does pass, it would go off to the Senate next week for more negotiations there. Either way it’s becoming clear that the political process is not as speedy or as simple as many on the street have been thinking and it seems only a matter of time before the instant is not fast enough speed of markets and the glacial speed of government collide. Titanic; meet iceberg.

On the other hand, it appears that the wheels of government are turning away in the background. Today the US has issued a Presidential Permit to TransCanada approving construction of the Keystone XL pipeline after years of delay and rejection under the Obama Administration. There also has been talk of offering a tax deal to companies to repatriate overseas cash if they funnel the money into infrastructure investment.   

This weekend brings an EU Summit to celebrate the 60th anniversary of the EU with the union finding itself at a crossroad. Britain is set to trigger Article 50 to begin Brexit negotiations next Wednesday with the initial EU response expected within two days or by next Friday. Despite the recent setback in the Netherlands, Euroskeptic and populist movements are attracting a lot of support in countries across the union.  

German officials have been speaking today suggesting they don’t expect other countries to follow the UK out the door (what else are they going to say really?) and appear to be laying the groundwork for a multi-speed Europe. Over the weekend, expect to see a lot more comments about the health and future of the EU, next week we’ll see more on what the markets think of the rhetoric.  

This morning also brings US flash manufacturing and service PMI reports plus US durable goods orders and a number of Fed speakers. Unless there is a major surprise, however, these reports could get overshadowed by political developments. 

Corporate News

TransCanada        has received a Presidential Permit to proceed with the Keystone XL pipeline

Economic News

Significant announcements released overnight include:

Japan flash manufacturing PMI        52.6 vs previous 53.3

France GDP                1.1% vs street 1.2%
France flash manufacturing PMI        53.4 vs street 52.4
France flash service PMI        58.5 vs street 56.1

Germany flash manufacturing PMI    58.3 vs street 56.5
Germany flash service PMI        55.6 vs street 54.5

Upcoming significant economic announcements include:

TBA            US House of Representatives votes on health care reform bill

8:30 am EDT        Canada consumer prices        street 2.1%
8:30 am EDT        Canada median core CPI        previous 1.9%

8:30 am EDT        US durable goods orders        street 1.3%
8:30 am EDT        US durables ex transport        street 0.6%
8:30 am EDT        US capital goods non defense ex air    street 0.5%

9:45 am EDT        US flash manufacturing PMI        street 54.7
9:45 am EDT        US flash service PMI            street 54.0

8:00 am EDT        FOMC Evans speaking
10:00 am EDT        FOMC Dudley speaking

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