March 2017 in Review
By Juan Pablo | April 4, 2017
The month of March saw conflicting headline impact between U.S. fiscal and monetary policy as one of the main drivers of worldwide sentiment. The net effect was a reduction in risk sentiment expressed by the leveling out of the S&P500 Index below 2,400.
On the monetary policy side, the March 15th benchmark interest rate increase served as a vote of confidence in a warming business climate. Negating that confidence vote, however, was the pulling of the U.S. healthcare reform initiative by U.S. Republican leaders. Markets are now questioning the viability of future fiscal policies like U.S. tax reform and the trillion dollar infrastructure spending plan. This is further compounded by a historical trend whereby a president is most influential when he first enters office after which his influence slowly wanes.
The month began with a European Central bank meeting on the 9th of March which announced that its Quantitative Easing Program (QE) would be tapered from €80 billion to €60 billion per month. Markets are currently factoring in a central bank agenda that would likely see QE purchases cut to €40 billion per month in the first quarter of 2018, €20 billion per month in the second quarter, and then finally an end to QE in June 2018.
Friday March 10th saw the U.S. Employment Situation report for the preceding month. Nonfarm payrolls rose 235,000 vs. street expectations of 200,000 while the unemployment rate slipped one tenth to 4.7%. Finally, in key central bank news, the following Wednesday March 15th also saw the aforementioned Federal Open Market Committee meeting.
As the battle for undecided voters heats up in France, recent polls show independent candidate Emmanuel Macron with a very thin lead over separatist rival Marine Le Pen in the first round. They would then face each other in the run-off, which is to be held on May 7. Le Pen is then expected to lose in the final round of voting, with 40% of the vote vs. 60% for Macron. With the populist surprises of both Brexit and the U.S. election fresh in our collective memories, it is important to take the preceding polls with a grain of salt. Specifically, in a country where terrorism and an ongoing migrant crisis are among the key election issues, political correctness may very well motivate voters to lie to pollsters en masse. While Le Pen currently has a lower probability of being elected, her success would likely cause severe consequences for the future of the Eurozone and cannot yet be ruled out.
Crude prices moved roughly $6 in the month of March. Starting with a high of $54 at the end of February, oil troughed all the way to $48 before ending the month around $50. Some of this move can be attributed to increased U.S. shale output which is traditionally measured by the Baker Hughes Rotary Rig Count. Widely accepted as the de facto barometer for U.S. oilfield activity, the independent number has climbed nearly 24% since the start of the year, corroborating the U.S. drilling sector renaissance.
April’s trading calendar starts with the U.S. employment situation report on Friday the 7th, a rate announcement from the Bank of Canada on the 12th and an announcement from the Bank of Japan on or around April 26th. This month’s central bank activity culminates with a rate announcement from the European Central Bank on the 27th.