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How markets have been able to ignore U.S. political dysfunction

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

The U.K. government will officially trigger the Brexit process today, but, while this is an important geopolitical story, I'm having trouble finding ways in which Brexit affects domestic investors. There are individual companies, like REITs, with London properties and independent brokerages operating in England that might - and I emphasize might – be affected, depending on future negotiations between the U.K. and the European Union but overall the Canadian market effects seem marginal.

"Brexit Begins as U.K. Submits Formal Request to the EU" – Bloomberg
"What is Article 50 – and what does it mean for Canada?" - BNN
"What Comes Next After May Starts Brexit March 29: QuickTake Q&A" – Bloomberg
"Britain triggers Article 50: the choreography of the big day" – Financial Times

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Bloomberg explains how markets have been able to ignore political dysfunction in Washington – a stronger corporate profit outlook,

"'In our mind, [market gains have]s been driven more by economics and earnings, and less by the Trump phenomenon,' Tobias Levkovich, Citigroup Inc.'s chief U.S. equity strategist, said in an interview on Bloomberg Television. For the first time since 2011, hopes for double-digit growth in U.S. earnings aren't a fantasy. Despite oil's slump to skepticism over Trump's growth agenda, Wall Street analysts have been standing firm on forecasts that represent almost twice the profit growth seen in 2013, a year when the S&P 500 rose 30 percent."

"Behind Trump Rally Resilience Is Unusually Firm Profit Outlook" – Bloomberg


Global economic data continues to improve. The Financial Times reports that global trade activity has hit a seven year high (the loonie has tended to correlate with trade activity) and the Citi Global Economic Surprise Index, which measures growth data relative to consensus economists forecasts, is moving higher.

At the same time, there are cracks appearing in the U.S. economic growth story. For one, credit growth has slowed significantly in recent months,

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"'One of the stories for optimism at the start of the year was that the gain in confidence and financial market deregulation would spur a rebound in credit creation,' said Michelle Meyer, economist at Bank of America Corp. 'Surprisingly, the data show the opposite.'"

In addition, Morgan Stanley has found a significant disconnect between U.S. confidence and survey results, and slower hard data,

"The difference between quantifiable data and reports based on sentiment has never been so wide, prompting a sharp divergence in expectations for first-quarter US economic growth, according to an analysis by Morgan Stanley."

"Sluggish Bank Lending Is The New Focal Point for Trump Reality Check" – Bloomberg
"Morgan Stanley flags 'record gap' between hard and soft US economic data" – Financial Times (see Twitter for relevant chart here )
"Global trade growth hits seven-year high" – Financial Times


Tweet of the Day: "@chris1reuters U.S. crude #oil inventories likely hit new all-time high above 534 million barrels last week - @Reuters poll #OOTT #OPEC #shale #WTI #Brent" – Twitter

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Diversion: "Don't Blame Your Social Media Feed for the Growing Political Divide" – Bloomberg

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


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