With congressmen in the US splitting from the party lines in another vote for the Healthcare bill, republicans are having a hard time remaining united, and the markets are starting to notice. The dollar dropped on the news that the republicans ability to pass the new healthcare bill is waning and the dollar index is suffering as a result.

The inability of the US government to pass bills or show signs of cooperation have the world taking notice and looking for better regions and currencies to place their money. The talk by the Fed and their concerns on inflation has contrasted other central bank's hawkish outlooks and started the dollar decline. We could now see an acceleration as the much anticipates (and baked in) prospects of fiscal policy padding the withdrawal of monetary policy looks less likely.

Over the past 24 hours the Euro has hit a year high, the markets saw a drop in value (especially in tech), and volatility in most asset classes spiked. It was a very central bank heavy day but there seemed to be something more to the movements in assets.

Mario Draghi of the ECB came out more hawkish than expected which resulted in many investors taking notice and adjusting their assessments of the Euro. There could also be a larger trend that could be starting to take form. The ECB is yet another major central bank that is now taking away the punch bowl of easy monetary policy, and much sooner than the markets were expecting based on the shockwaves. Over time the markets will have to find the best places to invest based on fiscal policy and unassisted economic growth. This trend makes sense with the selloff in tech stocks as a lot of cheaper money was chasing growth.

The Dollar rally from the Fed's moves to raise rates and discuss balance sheet reduction could be coming to an end. The Eurozone is in an earlier stage in the growth cycle than the US and already looking at the potential for less stimulus. With US growth starting to wane from being in a later stage of the cycle, the ability for rates, and the Euro, to move up in relation the Dollar.

​These are one day moves and could be reverted with any news confirming the former trend but it is important to be aware of these trends and look for confirmations, flaws, and adjustments.

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.

With the Fed minutes today, we are seeing more evidence of the policy and inflation being intertwined. The Fed mentioned that while markets are looking at lower taxes and more fiscal expansion, it is difficult for them to asses the inflation levels that will come through 2017 and beyond. The minutes have shown the vast majority of Fed officials wanted more information on the policy front before taking action in January.

​It will be interesting to see if inflation expectations create a self fulfilling cycle and the Fed is forced to raise rates into an environment that doesn't see fiscal stimulus come. This would no doubt see a re-pricing in the markets, specifically commodities and emerging markets which are participating in this broad rally perhaps unjustly.

On the other side of the spectrum, which the minutes seem to have alluded to, is the Fed holding back on rates due to the uncertainty. This could cause inflation to get ahead of the 2% target and see the Fed either have to aggressively increase rates, shocking the markets, or being seen as behind the curve. This could explain the rise in gold along side the S&P500 along side the markets in 2017.

The Dollar is down to the pound and euro from better than expected inflation numbers out of the UK and upbeat remarks from the ECB. In about 30 minutes Theresa May is set to outline her Brexit plans which could send the pound back in the other direction.

We have seen the inflation pick up in many regions that were plagued with slow growth and low inflation since the crisis, which has allowed the Fed to raise rates and the look to do so more aggressively this year. But the political landscape it talking about some policies that could derail these early signs of normalcy.

​The hard Brexit speech coming up within the hour will be the first we can see the headwinds that the UK might face over the coming years and how this will affect growth.

Chinese President Xi Jinping has also make some strong comment at the World Economic Forum in response to Trumps trade talks. The rhetoric isn't the main reason for concern, but the fact that Xi is at the forum is a sign that China looks to take a more active role in the global economy. If America starts to isolate itself now it will be ceding regional power and economic potential to countries that are looking for a more outward role.

Through this week's inauguration and the months beyond we will see if the politics of the Eurozone, UK, and US will have the same effect that the November elections did for the reflation trade or if the skepticism of trade and globalization start to pull back growth expectations.

Markets are starting a new year. The US markets look to be opening higher, oil has hit a high not seen since the middle of 2015, and the dollar is rallying. The news is talking of a lot of the news that could de-rail the current rally, and while there is merit to it the factors to watch can be boiled down to a few data points.

• US Dollar: The trend of the dollar has the ability to exacerbate many of the issues that are festering in the markets now. From capital flight in China to the decline of US multinational companies' revenue, a sharp rally or decline will have an affect around the globe.
• Chinese debt: Corporate sector debt in China has been a worry over the past year, but the government has found ways to curb speculation in a way that didn't shock the market like the end of 2015. This year more will have to be done to limit capital flight out of the country and manage the large debt load. Whether through government intervention or defaults, the steps taken (or not taken) by the government will dictate how the deleveraging will occur and how global markets will be affected.
  
• European elections: More of a slow burn in 2017, the elections will determine if the status quo of the EU will remain intact. If euro-skeptics get a majority it would break the social contract that has kept the Eurozone together in terms of bailouts, austerity, and immigration.
  

​As a partial hedge against this, you can look to invest in emerging markets with good growth prospects and healthy debt profiles (not China) to take advantage of the dollar decline potential, higher yielding assets, and lower stock valuations. Taking gains and buying value (not to mention taking a longer term view) are the only other safe plays so far this year.

The Italian referendum gave a shock to the markets, for all of about an hour. Since the referendum the PM resigned and opened the potential for a euro-skeptic to take control in future elections. To date there doesn't seem to be much concern in the markets over the threat to the Eurozone but the seeds of a crisis are sown. The far right policies in France, Italy, and even growing in Germany will make cohesive action around the next crisis almost impossible. This will lead markets to see this as a fragmenting of the markets and yields on bonds across the region will start to diverge much more than they have now. Germany will not be exempt from the pain, if investors start to price in more of a likelihood that countries such as Italy will leave the Eurozone, inflation expectations will increase dramatically and cause the ECB to take a second look at their stimulus program.

These policy issues put more of a strain on toolkit to resolve issues and not necessarily cause the problems themselves. So the markets could continue their accent for the time being but any rise from here will be without much of a safety net for future issues that may arise.

The S&P 500 hit a record intra-day high today, also breaking a major technical resistance level. This shows more upside in the US markets, all things remaining equal. But it would be wise not to look away from the rest of the global economy. The US election has captured the headlines and attention of markets and will be a formidable force in markets for some time.

Italy is going to have their Referendum in 2 weeks time, which could be another blow to the unit of the EU in budget balancing. The EU is already facing populist factions that want to have their own 'Brexit' moment, and a lot of the resentment is a byproduct of low growth.

China has restricted lending to real estate developers, which is starting to be seen in the home numbers, and soon GDP. How well the Chinese government manages the decline in home prices will have a larger impact on commodity prices than any type of stimulus plan or inflation trade that may come to fruition in the new administration.

​The optimism in the US is hard to ignore, let alone short, but it is more important now to look at external factors to be the 'out of left field' news that shakes the mood in the US. 

A surprise Trump victory in the US cause overnight market turmoil. US futures were down 5% as the results started to show Trump taking the lead. We have now gone 50 bps positive on the S&P and markets seem to have shrugged off all of the fears that caused the market declines last week.

Looking longer term I wonder how much of this is attributable to the expectation of easing by the Fed as a result, short covering, or cash coming back in after the uncertainty cleared. This week could be an opportunity to look positioning for the road ahead in 2017 and what factors could shape perception. 

• Inflation expectations (Fed members are talking all this week)
• Article 50 and Brexit by March
• Mounting Chinese debt 
• Political shifts in Europe
• Geo-politics in Europe and Asia