Mar 6, 2017

March: The Month of Financial & Political Minefields

One and a half month after the inauguration of Donald Trump as the President of United States of America, the world is still trying to figure out his stand in foreign affairs. The immediate concern of the financial market right now, is to see whether President Trump is able to pull off his promise of lowering the US tax rate and increasing government spending at the same time. With US budget discussion in full force, the financial markets are scrutinizing his every single move to see how the debate will lead to. It is the promise of a Trump fiscal push that lead to the current stock market rally, and the failure to deliver a huge government spending will probably lead to strong disappointment in the financial markets.

Other than the closely watched federal budget discussion, March is also filled with many major political milestones that will trigger a change in mood of the current market. Here are the list of other market moving events:

US Federal Open Market Committee Meeting
The market has generally expected that the US Federal Reserves will raise interest rates for 3 times this year and will only start to rise it by June. However, hawkish messages from members of the committee has increased the speculation that the interest rate will be raised in March, and probably be raised for than the expected 3 times. This event may potentially affect every single financial markets in the world, depending on how the meeting goes.

UK Triggering Article 50 for Brexit by End of March
UK Prime Minister Theresa May has promised to invoke article 50 by the end of March, which will formally start the procedure for UK to exit from the European Union. There is still the barrier of a Parliamentary approval before the cabinet can go ahead with invoking article 50. Scotland is threatening to hold their own referendum to break away from United Kingdom should article 50 is invoked. How this series of event pans out will have potential repercussion on the European markets.

Chinese National People Congress
China's National People Congress kicks off in early March, as the political leaders of China gather to make decisions on the direction of the country. So far, here are the important news we have gleaned from the congress:
  - China will maintain growth at 6.5%
  - Vows to rein back on heavy industry, to bring back the "Blue Skies"
  - Reduce financial risk and maintain market stability

No drastic policy announcement is expected as the Chinese government will probably want to avoid rocking the boat, as China will see a transition in leadership later in this year whereby President Xi will probably be handed another 5 years tenure as the President.

Dutch Elections
As the populist movement swells around the world, watchers are most concern about their hold in Europe, whereby advancement in the populist movement will weaken the European Union project. The populist faction led by Geert Wilders is projected not to win, but than if history is by any guide, nobody puts absolute trust in polls these days.

With the US stock market at a relatively high valuation, it will not be surprising if an unexpected out-come will trigger a correction this year. The current bull market is the second longest in history and it is also the second most expensive stock market in history. The most highest valuation hit for the record holder is at year 2000, before the dot-com bubble crash at a P/E of 30 times. The current stock market is at 25 times. A bit of caution is good at this moment in time.
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