1) March will be a busy month for markets with important macro data releases, central bank meetings, political events, and potential policy announcements in the US, UK, and France. 2) Key events include the US Federal Reserve meeting where markets expect a 25 basis point rate hike, UK triggering of Article 50 to begin Brexit negotiations, and the first round of the French presidential election. 3) In the UK, weak real wage growth and declining retail sales point to ongoing pressure on household consumption, the main driver of the UK economy, despite falling unemployment. This supports the Bank of England keeping interest rates unchanged for now.

1. 1
March Madness
Despite Donald Trump having been inaugurated as the 45th President of the United States
only 28 days ago, that it has been an event-packed month is the under-statement of the
decade.
However, as Randy Banchman sang in his number-one hit in 1974 – incidentally the year
President Richard Nixon resigned following the Watergate scandal – “You Ain't Seen
Nothing Yet".
Indeed while President Trump has already provided markets, the media and policy-makers a lifetime’s
worth of material to digest, many of the issues which have pre-occupied financial markets in the past twelve
months have somewhat lost some of their bite. Only recently, following Chairperson Yellen’s testimonies to
the Senate and Congress (on 14th
and 15th
February), has the Fed’s likely path of rate hikes re-focussed
financial markets’ attention.
Moreover, the frenzy surrounding the British vote to leave the European Union (EU) has lost its fizz since
Members of the Lower House of Parliament in early February overwhelmingly voted through, with no
notable amendments, draft legislation granting the government the right to trigger Article 50 – the formal
notification for the UK to start the process by which it exits the EU. The draft bill is now with the Upper
House of Parliament (House of Lords) where the ruling Conservative Party only has 252 peers out of 805.
However, the broad-based expectation is that the House of Lords, which will debate the draft bill on 20-21
February (see Figure 1), will approve the draft bill albeit perhaps in exchange for a few amendments. This
final step in the long-winded road towards Prime Minister Theresa May triggering Article 50 by her self-
imposed deadline of end-March has seemingly failed to capture the imagination of a public and media
perhaps starting to feel the effects of “Brexit fatigue” (see Figure 3 in Market fatigue in the face of
catastrophic success, 20 January 2017).

2. 2
Figure 1: A very busy month of March
Source: Conseil Constitutionel, European Central Bank, Federal Reserve,House of Lords, US Bureau of Labour Statistics,
US Bureau of Economic Analysis
Finally, the April-May French presidential elections are attracting much attention given the size of France’s
economy, its influence with the EU and possibility – albeit still remote in my view – of the National Front
candidate climbing to the highest echelon of French politics (see EM currencies, Fed, French elections and
UK reflation “lite”, 25 November 2016). The added twist is that the Republican candidate, François Fillon, is
facing possible prosecution over alleged allegations that he paid his wife, Penelope Fillon, for official work
she did not do (“Penelopegate”).
Yet, there are still too many “ifs” and “buts” to confidently predict the winner of the first round of the
elections (on 23rd
April), let alone who will win the likely second round (on 7th
May) to become France’s
president. For starters, the final list of presidential candidates has yet to be confirmed (see Figure 2). Fillon
Date/time Country Event Comment
20-21 Feb UK House of Lords Second reading of draft bill granting
government authority to trigger Article 50 (opportunity for
members to debate bill's key purpose and principles)
21 Feb US Voting FOMC member Kashkari speech
22 Feb US Release of minutes of February FOMC policy meeting
28 Feb US Third and final release of Q4 2016 GDP data
1 March US Release of February manufacturing ISM and January
personal income, spending and PCE inflation
7 March UK House of Lords Report Stage of draft bill granting government
authority to trigger Article 50 (further chance to examine bill
and make changes)
10 March US February labour market data (including non-farm payrolls)
10 March
(TBC)
UK House of Lords Third reading of draft bill granting government
authority to trigger Article 50 (chance to 'tidy up' the bill)
15 March US Federal Reserve policy meeting with Q&A session and
publication of updated forecasts
15 March Netherlands Parliamentary elections for 150 members of House of
Representatives
Nationalist, right-wing Party for Freedom
currently polling 25%
17 March
(18:00 Local
time)
France Deadline for candidates to officially submit their
presidential bids (and their statement of financial assets)
to Conseil Constitutionnel
So far ten candidates have confirmed
intention to run, including Francois Fillon
(Republican), Benoit Hamon (Socialist),
Emmanuel Macron (Independent/centrist)
and Marine Le Pen (National Front).
24 March
(latest)
France Conseil Constitutionnel to confirm official list of candidates for
2017 French presidential elections
31 March US Release of February personal income, spending and PCE
inflation
31 March UK Prime Minister Theresa May's self-imposed deadline to
trigger Article 50
31 March Eurozone Extension of European Central Bank's current
quantitative easing program.
Monthly bond purchases in April-December
2017 scheduled to fall to €60bn from €80bn
7 April US March labour market data (including non-farm payrolls)
23 April France First round Presidential elections
7 May France Second round Presidential elections
Right-wing Front National leader Marine Le Pen
could make it to the second (and final round) of
the presidential elections but is unlikely to win
and become president.

3. 3
could conceivably pull out of the race and François Bayrou – the leader of the centrist Democratic
Movement and a veteran of three previous presidential elections – has yet to confirm his candidacy.
While Bayrou will in all likelihood not finish in the top two to make it through to the second round, current
opinion polls and his past record suggests that he could easily win 5% or more of the popular vote in the
first round. While this may be insufficient to have a material impact on which two candidates come first and
second, Bayrou could at the margin split the centrist vote which would work against Emmanuel Macron, an
independent running on a centrist platform.
Figure 2: Ten candidates have so far put their names forward for French elections – but this could change
Source: Various, Conseil Constitutionnel
Note: (1) Political movement rather than party per se; (2) François Bayrou has yet to confirm his candidacy; (3) Philippe
Poutou is still short of the 500 signatures required. MEP is Member of European Parliament
Needle to push into the red on “intensity dial” in March, starting with March Fed meeting
While markets have arguably had a lot to digest in the past few weeks, it will likely pale in comparison to
the torrent of macro data, central bank policy meetings, political events and possible policy announcements
which they will face in March (see Figure 1). The needle on the “intensity dial” could be pushed well into the
red.
Name Party Current position Former positions Former presidential bids
François FILLON Republican Party National Assembly deputy
Prime Minister, Minister of
Labour, Senator
--
Benoît HAMON Socialist Party National Assembly deputy
Minister of National Education,
MEP
--
Marine LE PEN National Front Party leader, MEP Regional councillor
3rd in 2012 (17.9%), 4th in
2007 (10.44%)
Emmanuel MACRON
Independent / En-
Marche! (1) -- Minister of Economy --
François BAYROU (2)
Democratic Movement Party leader, Mayor of Pau
Minister of National Education,
National Assembly deputy,
MEP
5th in 2012 (9.1%), 3rd in
2007 (18.6%), 4th in 2002
(6.8%)
Jean-Luc MELENCHON
Independent /
Unsubmissive France (1) MEP Senator 4th in 2012 (11.1%)
Yannick JADOT Greens MEP Greepeace co-ordinator --
Nicolas DUPONT-AIGNANFrance Arise
Mayor, National Assembly
deputy
UMP (Republican Party)
member
7th in 2012 (1.8%)
Philippe POUTOU (3)
New Anticapitalist Party Trade unionist -- 8th in 2012 (1.15%)
Nathalie ARTHAUD Workers' Struggle Municipal councillor
Teacher (economics), party
spokesperson
9th in 2012 (0.56%)
Jacques CHEMINADE Solidarity and Progress
Head of LaRouche
movement in France
Civil Servant
10th in 2012 (0.25%), 9th in
1995 (0.28%)
Candidates for the first round of the French presidential elections - as it stands
(in alphabetical order for the top four candidates)

4. 4
For starters, in the US the Federal Reserve will hold its first truly meaningful policy meeting of the year.
While a February rate hike was never really in play, markets are now attributing a 25% probability of a 25bp
hike on 15 March. Pricing for a hike could conceivably edge higher if US data out on 1 March show a
further rise in ISM manufacturing (in February) – it rose for a fifth consecutive month in January – and
personal income, spending and CPE inflation tick higher. Non-farm payrolls are out on 10 March. A
continued fall in the pool of available labour (the unemployed, part-time workers and inactive workers who
want to work) from just over 40.7 million in January would, in my view, further nail down the probability of a
March Fed hike.
US data have on the whole been robust in the past month and I would flag the surge in the Philadelphia
Fed Manufacturing Business Outlook Survey to a 33-year high of 43.3 in February (see Figure 3).
Figure 3: Massive February Philly Fed manufacturing index points to rapid US GDP growth in Q1 2017
Source: Philadelphia Fed
Since 1980, on only five occasions has the average quarterly Philly Fed index been above 32 (between Q2
1983 and Q2 1984) and GDP growth averaged 8.3% quarter-on-quarter annualised during that period.
Based on the admittedly basic trendline from Figure 3, GDP growth in Q1 2017 could be as high 6% qoq
saar – the fastest growth rate since Q3 2003. Of course other variables will colour Q1 GDP data and the
consensus forecast is currently for far more modest GDP growth of 2.5%. The first estimate of Q1 2017
GDP data will not be released until 28 April (i.e. well after the March Fed meeting) but the Fed's own
models will give it a pretty good idea of what actual GDP growth was in Q1.
Moreover, President Trump has promised to flesh out in the first 100 days of his presidency his
administration’s plans to cut US income and corporate taxes – by end-March it will be 70 days since his 20th
January inauguration.
y = 0.1297x + 1.7462
R² = 0.5083
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
-50 -40 -30 -20 -10 0 10 20 30 40 50
USGDP,quarter-on-quarterseasonallyadjusted
annualised%rateofchange
Philadelphia Fed Manufacturing Index
Q1 2017 GDP
based on Jan-
Feb 2017
Philly Fed
US Philly Fed vs GDP growth (quarterly data since 1980)

5. 5
Whether or not Trump is true to his word, my view is that the burden of proof is and will likely remain on the
doves to show that a rate hike is not warranted and my core scenario is that the Fed will hike its policy rate
25bp on 15th
March for the second time in three months.
The political calendar in Europe has the potential to be as disruptive to markets, with key dates in the UK,
Netherlands and France
UK – Triggering of Article 50 and weak real wages and retail sales
The House of Lords will likely have approved by mid-March the draft bill allowing the government to trigger
Article 50. So barring any surprises, Theresa May will be in a position to formally notify the EU of the UK’s
intention to withdraw from the EU and she will want to do this before her self-imposed deadline of end-
March (note that Clause 2 of Article 50 does not specify the format of the notification but presumably it will
be in writing). From that point on, the two-year clock starts ticking. Whatever deal the British government
reaches on the terms and conditions of its exit from the EU and its new agreement with the EU, the UK will
in all likelihood officially cease to be a member of the EU by end-March 2019.
This timeline should come as no surprise to anyone but the actual notification is likely to be a watershed
moment in British politics and financial markets are unlikely to be totally immune, in my view. I would expect
Sterling to weaken, even if temporarily, as ultimately a formal notification of the UK’s decision to leave the
EU would reduce to almost zero the probability of the UK not leaving the EU (theoretically the British
government could change its mind and ask to annul the triggering of Article 50 but this would be an almost
inconceivable loss of face and would in any case most likely require unanimous consent from all EU
member states).
While any such Sterling sell-off could prove temporary, there are more fundamental reasons – which may
not be solely linked to Brexit – why Sterling will remain under pressure. I have since last summer flagged
the risk of Sterling’s weakness feeding through to rising UK inflation while the still sizeable pool of available
labour dampens workers’ wage-negotiation powers. The corollary was that corporate profits would be
squeezed and nominal wage growth fall behind inflation, ultimately weighing on household consumption
growth – the UK’s main engine of economic growth (see UK economy post-referendum - for richer but
mostly for poorer, 26 August 2016). This risk has clearly become reality in recent months (see Market
Fatigue in the face of catastrophic success, 20 January 2017).
UK inflation jumped to 1.8% year-on-year in January 2017 from 1.2% yoy in November while nominal
weekly earnings rose only 1.9% yoy in December, far slower than the pace of growth in the previous 6
months (2.6% yoy), as seen in Figure 4. Despite positive employment growth (see Figure 4), the pool of
potential workers – the unemployed, part-time workers and inactive workers who want to work – still stood
at about12.3 million in December (see Figure 5). That is down from a high of 13.2 million in August 2012
but still 1.5 million more than back in the early 2000s.

6. 6
Figure 4: Weekly earnings growth slumped in
December…
Figure 5: …with still large pool of available labour
likely weighing on workers’ bargaining power
Source: ONS Source: ONS
So in real terms, weekly earnings rose only 0.2% yoy in December – the slowest pace of growth since
August 2014 (see Figure 6). They fell 0.6% month-on-month in December and were down 0.2% since May.
Put differently, real wages contracted in the second half of 2016 (see The common theme of low-wage
growth, 10 February 2017).
Figure 6: In real terms, weekly earnings growth
has collapsed…
Figure 7: …and perhaps unsurprisingly retail sales
have contracted three months in a row
Source: ONS Source: ONS
-1
0
1
2
3
-5
-4
-3
-2
-1
0
1
2
3
4
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17
Weekly earnings including bonuses
nominal terms
Total employment(rightscale)
% year-on-year
10.5
11.0
11.5
12.0
12.5
13.0
13.5
Jan 00 Oct 03 Jul 07 Apr 11 Jan 15
UK - Unemployed, part-time workers and
economically inactive but want a job (millions)
-5
-4
-3
-2
-1
0
1
2
3
4
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17
Average weekly earnings including bonuses,
constant 2000 prices, % year-on-year
-2
-1
0
1
2
3
Jun-16 Aug-16 Oct-16 Dec-16
Value Volume
UK retail sales, including automotive fuel,
seasonally adjusted, month-on-month % change

7. 7
Perhaps unsurprisingly the volume of retail sales has been on a downtrend, falling in January for the third
consecutive month (see Figure 7). Since October, retail sales have contracted 2.7% and the year-on-year
rate of growth fell to 1.5% in January 2017 – the low since November 2013. This trend in real wage growth
and retail sales along with the only modest narrowing of the UK trade deficit guides my view that the Bank
of England (BoE) is for now likely to look through the current rise in inflation and keep its policy rate
unchanged at its all-time low of 0.25%.
If my scenario of a Fed rate hike in March alongside a dovish outlook for the UK economy and BoE prove
correct, this would advocate being short GBP/USD in the run-up to mid-March.
Netherlands – Nationalists will not win parliamentary majority but they will be key player
Parliamentary elections for the 150 members of the House of Representatives are scheduled to be held on
15th
March. While the Netherlands is a modest-sized economy – the sixth largest in the EU with a GDP of
about $770bn – it is a major trading partner for the EU’s largest economies (including Germany and the
UK). Moreover, the result of these elections will likely be viewed as a barometer of public support for
nationalist parties across Europe, including in France.
The Party for Freedom (PVV) – the nationalist and right-wing populist political party led by Geert Wilders –
currently holds only 12 seats (8%) but is currently ahead in admittedly volatile opinion polls. While support
for PVV has fallen in the past week, it remains around 25% which would give the party 37 seats. Other
main parties have said they would not enter into a ruling coalition with PVV, which would in turn make it
almost impossible for Geert Wilders to become Prime Minister. Nevertheless, in such a scenario the
Netherlands would join the ranks of Austria, Denmark, Finland, Greece, Italy and Sweden in having a
populist/nationalist party with more than 10% of parliamentary seats (see Black swans and white doves, 8
December 2016).
France – Political outlook may start coming into focus mid-March
Potential candidates for the presidential elections need to confirm their candidacies by 17th
March, which
the Conseil Constitutionnel will then have to approve and confirm by no later than 24th
March. This will
remove the current uncertainty about the presidential bids of François Fillon and François Bayrou.
Moreover, by then the first round of the elections will only be a month away.
Opinion polls in the month and in particular ten days preceding the 2012 and 2007 presidential elections
were good barometers of public opinion and the odds of a candidate making thought to the second round
and ultimately being elected president (see Figure 8). Markets will thus likely pay growing attention to even
incremental changes in opinion polls as we get closer to the 23rd
April.
However, prior elections have thrown up a number of surprises. In 1974, 1981 and 1995 the winners of the
first round lost in the second round, highlighting the importance of “tactical” voting. Moreover, in the 2002
elections opinion polls under-estimated support for Jean-Marie Le Pen, who came a close second in the
first round, and the prevalence of “protest” votes. If anything, predicting this year’s winner will be more, not

8. 8
less, difficult, as President Hollande has opted not to run for a second term (the first time for an incumbent
President since the 1974 elections).
Figure 8: Opinion polls were reasonably accurate in predicting 2012 and 2007 French presidential elections
Source: Conseil Constitutionnel, Sondages en France, Ministère de l’Intérieur
Note: Average of polls conducted in the 10 days prior the first and second rounds
Candidate Poll actual Difference Candidate poll actual Difference
François Hollande 28.0 28.6 0.6 Nicolas Sarkozy 28.5 31.2 2.6
Nicolas Sarkozy 26.4 27.2 0.8 Ségolène Royal 24.2 25.9 1.7
Marine Le Pen 15.9 17.9 2.0 François Bayrou 18.3 18.6 0.3
Jean-Luc Melenchon 13.4 11.1 -2.3 Jean-Marie Le Pen 13.8 10.4 -3.4
François Hollande 54.2 51.6 -2.6 Nicolas Sarkozy 52.5 53.1 0.6
Nicolas Sarkozy 45.8 48.4 2.6 Ségolène Royal 47.5 46.9 -0.6
François Hollande 53.4 51.6 -1.7 Nicolas Sarkozy 53.25 53.1 -0.2
Nicolas Sarkozy 46.6 48.4 1.7 Ségolène Royal 46.75 46.9 0.2
Second round (6 May) - Polls conducted before second round
First round (22 April) - Polls conducted before first round
2012 elections 2007 elections
Second round (6 May) - Polls conducted before first round