Last Thursday, Dutch politicians commissioned a report into whether or not the country should keep the euro. On 15 March, the Netherlands goes to the polls. The latest polls indicate Geert Wilder’s PVV winning 29 seats to the VVD’s 25.

In any case, the chances of a stable coalition are slim and a minority government or a broad and possibly unstable coalition are most likely. Beware the Ides of March.

Macro:

3 hikes and you’re out: If the Fed is going to hike rates 3 times this year, it needs to get cracking. The market implied probability for a 15 March hike stands at 40%. If the plan is to raise rates 3 times in the year, it is surely better to get one out early while inflation and growth data are strong and markets are yet stable. The market seems to be discounting the Fed, after it spent 2016 crying wolf and then acting just once. The conditions are right for a hike in March and one struggles to find an excuse not to. The Fed has recently pointed to complacency in the stock market as signalled by the VIX, but heightened volatility would surely stay the Fed’s hand rather than force it. The argument that low volatility equals complacency smacks of tanking. The VIX measure is interesting in itself though.

Commodities:

MLPs had a bad week, down 2.1% for the week as equity issuance swelled to 1.6b USD. The fundamentals of MLPs remain attractive and we see the current volatility as a technical issue. Equity issuance was under pressure in 2016 with 0.6b of issuance in Q1, 2.2b in Q2, 2.0b in Q3 and 1.7b in Q4. In the first 2 months of 2017 we are at 1.6b. We expect that MLPs will continue to grind higher once the market absorbs the new issuance. We also expect the corporate convergence to mitigate some of the issuance in 2017. Most importantly, we expect product prices to remain stable and counterparty credit quality to remain robust.

Week ahead:

Feb 27

  • Germany retail sales
  • Eurozone M3, business climate, consumer sentiment, economic confidence, industrial sentiment
  • US durable goods, pending home sales
  • Japan industrial production, retail sales

Feb 28

  • Europe inflation data
  • India BLP economic survey
  • US advance goods trade balance, core PCE, Case Shiller, Chicago PMI, consumer confidence
  • Fed’s Bullard speaks

Mar 1

  • South Korea trade data
  • Eurozone Mfg PMI
  • US ISM Mfg
  • India PMI
  • Germany unemployment
  • UK BoE mortgage and consumer credit
  • US personal income and spending

Mar 2

  • Swiss GDP

Mar 3

  • Eurozone Composite and Services   PMI
  • US Non-farm and private payrolls, ISM Non Mfg