Economic news last week was full of information that reversed course on previous reports. Some of it was only in the news for a day before retractions began. How did the market react?

European Central Bank (ECB)

Probably the most notable of the ‘just kidding’ moments came after a speech by ECB President, Mario Draghi. The overall tone of Draghi’s speech indicated that loose monetary policy was likely coming to a close. Markets reacted accordingly with yields across Europe increasing meaningfully. A day later, several central bankers across Europe indicated that markets had over reacted to the comments, but nevertheless yields remained unmoved by these assertions.

Brazil

President Michel Temer has been in office since the removal of President Dilma Rousseff (after a corruption scandal plagued her administration). He has often been seen as a reform politician, enacting many initiatives to clean up a corrupt political structure.  This week, President Temer was indicted on bribery charges, stemming from the Brazilian meat packing industry… so much for reform… Emerging Markets such as Brazil have been one of the best performing markets YTD. Risks are inherent, but the rewards can be worth the exposure.

US Senate

The US Senate was to vote on the American Health Care Act (AHCA) this past week, just kidding; they delayed it into July. This is not really economic news, however, delays with the AHCA further delay the voting on tax reform. As a result, selling accelerated on the major indices Tuesday.

Conclusion

The US large cap markets were down last week, albeit less than 1%. The markets reactions to changing economic data was fairly muted with the exception of ECB President Draghi. The comments describing monetary tightening from the ECB were unexpected and responded too quickly. Should it be an over-reaction and the ECB move more slowly, the party in the EU bond market may not be entirely over.

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