Global markets started the week on a down note from US political dysfunction and rallied in hopes of tax reform. In global affairs the markets seem to be discounting (or have priced in) the official invoking of article 50. Given the dramatic shifts in US politics, it is easy to understand why there is less emphasis on an event that will take 2 years to sort out. This is why it will be important to understand what could be over the horizon and find opportunities or risks while others worry in the near term.

The Pound remains at a post-brexit low and seems to have a lot of bad news baked into it. It would make sense from a longer term point of view to look for opportunities in certain asset classes (such as Gilts) that will provide some upside potential and favorable exchange rate movement. With elections in France and Germany this year there will be plenty of volatility and headlines to create some buying opportunities in the UK market and being prepared for those opportunities will be important. It should be good to have a base case scenario and list out what is expected bad news vs unexpected. Below is a good start to this list.

• Elections in Germany and France will generate a lot of pro-European rhetoric and some Brexit bashing.

• Negotiations will no doubt be off to a slow start and will have some twists at the onset as Theresa May and Brussels gauge their positioning.

• Money will flow into and out of the region based on the global markets "political risk" appetite, mainly from US politics. 

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• Interest rate differentials (specifically in the US and UK) are largely priced in but any changes, on one side or the other, could create a shift if rate and currency expectations.

The Fed will speak in a few hours and the almost no one is expecting rates to remain the same. As discussed earlier the markets seem to be taking this rate hike in stride because the Fed seems to have waited to the very last minute to leave make sure there was nothing that could support a delay in rate hiking. What will be important to look for is the language at the conference. How the conference manages the expectations of the Fed going forward will play a large role in the markets going forward. 

Should the Fed get more aggressive in their language, and appear to want to head off inflation, the markets could take a pause and revalue equities on that assumption. If the Fed instead keeps the appearance of only raising rates in the absence of any data giving a reason to hold, then markets will feel the economy can expand without much interference from higher borrowing costs.

With nonfarm payrolls coming in at 235K, they beat most expectations. This leaves very little in the way of a rate increase this month by the Fed. What will be important to look out for is how aggressive the Fed seems to look in terms of future rate hikes. Like the ECB coming out stronger than expected in their remarks, a similar tone could spark rallies in yields and currencies here in the US. A quick drop in the dollar is now being reverse (with the exception to the Canadian dollar due to their strong job numbers) as people digest the news. This also led to a rally in the US market futures.

​This mixed signal of wall streets whisper number seeming to be higher means very little in the face of the Fed who was looking for bad numbers as the only hindrance to a March rate hike. So should these trends in the dollar and the markets keep in this direction all day, it could just be a traders opportunity to bet on the reversal, but nothing more.