PMIs have rebounded strongly from the lows of 2016 and do not signal recession by any stretch of the imagination but it appears that the current phase may begin to lose some momentum.

Adding fuel to the fire was the reigniting of a global trade war as Donald Trump imposed tariffs on steel and aluminium imports while the EU and China reacted with threats of retaliation.

When markets rise the public focus on the good fundamentals. When markets fall sufficiently they will once again focus on the bad fundamentals. In a sense, the market influences how we look at the world.

Last week, equity markets took a tumble together with the bond market as inflation and rate fears took hold. It was a small correction, hardly worthy of comment under normal conditions, but things haven’t been normal for over a year.

Somewhat incredibly, the US has embarked on fiscal expansion, this when the national debt as a proportion of GDP stands at the highest level since WWII.

This isn’t the first and won’t be the last time the Americans quarrel over how much they can borrow.

Coupled with the Fed’s normalization, this changes the demand and supply picture for US treasuries.

The first week of 2018 appeared to indicate continued risk appetite and exuberant sentiment, with some good reasons and some cautions.

The banks which in 2008 were found to be fragile have been repaired and returned to regular duty.

On the political front, the US Senate has passed its tax bill. Together with the earlier House tax reform, the stage is set for the so-called Trump tax cuts to be formalized.

Concerted policy normalization, whether appropriate or not, has led to bear flattening across USD, EUR and JPY term structures.

In Europe, miscommunication by the ECB regarding treatment of NPLs also hit bank stocks.

We see a rate hike in December and three more in 2018 as the Fed keeps its word.

In Asia, the main events that mattered was the unveiling of the 19th Politburo Standing Committee (PSC) in China and bank recapitalization by the Ministry of Finance in India.

Europe’s flash PMI data will also let us know whether the positive momentum of the European economy is holding up.

On macro, the market will probably look to US industrial production, the Philadelphia Fed manufacturing index and the UK labour market data to get the latest indications of the strength of the global economy.

The impact of the tax plan is clearly a policy of fiscal expansion which will boost growth, inflation and market determined interest rates.

The message from the ECB will be closely followed since they are next up on the calendar now that the Fed and BoJ have got their meetings out of the way.

Aside from the US, UK surprised with a much stronger-than-expected August inflation data as well.