# Can the market’s optimism survive a mad March?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2017-03-08
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Markets Surge Amid Optimistic Economic Outlook and Signs of
Meta Description: Stay updated on risk asset markets with insights from Investment Manager Jaisal Pastakia. Key events include Fed rate decisions, Brexit negotiations, and Dutch
URL: https://financedigest.com/can-the-markets-optimism-survive-a-mad-marchhtml

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By **Jaisal Pastakia,** Investment Manager at Heartwood Investment Management

Risk asset markets have begun the year firmly, underpinned by a more optimistic economic outlook and signs of reflation. Major US benchmarks and the FTSE 100 are all in record territory, while the cost of protecting against market losses has fallen substantially. Based on this more sanguine view of [higher US growth](https://www.financedigest.com/short-bowel-syndrome-market-higher-growth-rate-forecast-2020-2030.html "Short Bowel Syndrome Market Higher Growth Rate & Forecast 2020 – 2030"), a stabilising Chinese economy and rising momentum in the eurozone and Japan, there is reason to believe that markets can make further progress from here. Nonetheless, the journey might be bumpier over the next few weeks as [markets digest](https://www.financedigest.com/digestion-resistant-maltodextrin-consumption-to-rise-at-6-7-cagr-through-2029-supply-disruptions-driven-by-coronavirus-likely-to-limit-market-growth-future-market-insights.html "Digestion Resistant Maltodextrin Consumption to Rise at 6.7% CAGR Through 2029; Supply Disruptions Driven by Coronavirus Likely to Limit Market Growth – Future market Insights") several headline events:

**[Central bank](https://www.financedigest.com/central-banks-opt-for-shock-and-awe-to-tame-inflation.html "Central banks opt for shock and awe to tame inflation") meetings:** The US Federal Reserve meets mid-month and expectations are growing that policymakers will raise interest rates. Such a move would likely push US [treasury yields](https://www.financedigest.com/world-equities-fall-u-s-treasury-yields-rise-after-hawkish-fed.html "World equities fall, U.S. Treasury yields rise after hawkish Fed") and the US dollar higher. The market’s take on the January policy meeting minutes was relatively dovish, but [Fed policy](https://www.financedigest.com/dollar-gains-against-yen-as-fed-policy-debt-ceiling-in-focus.html "Dollar gains against yen as Fed policy, debt ceiling in focus") members have since indicated that the case for increasing interest rates sooner rather than later is compelling. The employment report, due to be released on 10th March, will be a good barometer of the strength of the US economy and underlying wage pressures. Meanwhile, the European [Central Bank’s](https://www.financedigest.com/central-banks-start-turning-off-the-cash-taps-2.html "Central banks start turning off the cash taps") communications are likely to be scrutinised for hints around drawing down the pace of stimulus, given recent improvements to growth and inflation. It is noteworthy that core eurozone [government bond](https://www.financedigest.com/lg-says-not-a-forced-seller-of-uk-government-bonds.html "L&G says not a forced seller of UK government bonds") yields, especially German, have overlooked the data and are instead discounting a higher risk premium due to political uncertainties.

**Triggering Article 50**: As the start of the negotiations with the European Union draws near, more prominence is likely to be given to UK [data and the looming](https://www.financedigest.com/uks-ftse-100-gets-a-lift-from-commodities-as-u-s-inflation-data-looms.html "UK’s FTSE 100 gets a lift from commodities as U.S. inflation data looms") uncertainty and associated costs around establishing new trading relationships. Already there are signs of some softening in economic data. The UK PMI manufacturing [survey slipped](https://www.financedigest.com/european-stocks-slip-on-dour-german-sentiment-survey-ahead-of-powell-speech.html "European stocks slip on dour German sentiment survey ahead of Powell speech") sharply in February, albeit from a strong level, despite other regions continuing to see upward momentum. Consumer data has also shown some deterioration including confidence indicators, [retail sales](https://www.financedigest.com/automobile-shortages-spending-shift-to-services-hurt-u-s-retail-sales.html "Automobile shortages, spending shift to services hurt U.S. retail sales") and consumer credit. There is also the politics of Brexit to consider which may be detrimental to investor sentiment. The SNP will hold its spring conference mid- month, likely agreeing to bring forward a proposal to the Scottish parliament for a second referendum on independence. Similarly, Brexit remains a thorny issue in [Northern Ireland](https://www.financedigest.com/uk-considering-delay-to-northern-ireland-elections-ireland-minister-says.html "UK considering delay to Northern Ireland elections, Ireland minister says") and any talk of a reinstatement of the border will potentially reopen divisions.

**Dutch elections**: While all of the focus appears to be on France, the Netherlands will be going to the polls on 15th March. The fragmented state of the [Dutch political system means that a coalition government](https://www.financedigest.com/internet-data-growth-has-not-pushed-up-telcos-network-costs-dutch-government-says.html "Internet data growth has not pushed up telcos’ network costs, Dutch government says") is the most probable outcome. Geert Wilder’s anti-establishment party is doing well in the [opinion polls](https://www.financedigest.com/p2p-investors-polled-on-their-thoughts-and-opinions-on-risks-vs-rewards.html "P2P Investors Polled on Their Thoughts and Opinions on Risks vs Rewards") but is unlikely to muster enough votes to be in government. The Dutch election is largely being ignored by markets; however, a significant swing to the populists could [lead to more nervousness around the upcoming elections](https://www.financedigest.com/centre-right-gerb-party-leads-in-bulgaria-election-partial-results.html "Centre-right GERB party leads in Bulgaria election -partial results") in France and, later this year, in Germany.

All of these events are of course well flagged, but they also represent potential areas of vulnerability to market sentiment: the impact of [higher US interest rates](https://www.financedigest.com/uk-house-prices-fall-by-most-since-2009-higher-rates-to-bite-nationwide.html "UK house prices fall by most since 2009, higher rates to bite-Nationwide") and a strengthening US dollar, downside risks to UK growth and the disruptive potential of populist politics. That said, fundamental data improvements are coming through [globally and fourth quarter corporate earnings have generally surpassed expectations](https://www.financedigest.com/global-date-syrup-market-expected-to-surpass-us-630-0-mn-by-2031.html "Global Date Syrup Market expected to surpass US$ 630.0 Mn by 2031"). There is room for further improvement in corporate [earnings growth](https://www.financedigest.com/bone-growth-stimulators-market-is-expected-to-earn-a-valuation-of-us-2-1-bn-by-2027.html "Bone Growth Stimulators Market is Expected to Earn a Valuation of ~US$ 2.1 Bn by 2027") in a reflationary environment, including in those economies that have lagged the current recovery cycle, such as the eurozone and Japan. In our view, if we were to see any potential dislocation in [markets this might be viewed as a potential opportunity](https://www.financedigest.com/merger-arbitrage-capitalizing-on-market-opportunities-in-ma-transactions.html "Merger Arbitrage: Capitalizing on Market Opportunities in M&A Transactions"). It is therefore worthwhile holding reasonable levels of liquidity, which can be deployed as necessary.


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