At least initially, Italy could call the shots for global markets in the week ahead, as the Trump rally begins to show signs of tiring.
The dollar, bonds and stocks should continue to take their cue from any hints of policy or plans from the incoming Trump Administration, and there are a few U.S. economic reports like trade data and consumer sentiment. But the whole world is watching Italy's constitutional referendum Sunday to see if it could cause the next Brexit-like tremor for markets.
"Particularly if the focus shifts to Europe, we think that these Trump themes could very well pause here with interest rates arguably up 70 basis points. The rally could very well have been front loaded," said Julian Emanuel, equity and derivatives strategist at UBS. Emanuel said the rallies in sectors like industrials and the small caps are showing signs of wear.
Even though the Italian referendum is "very Eurocentric," Emanuel said U.S. investors began to shift their attention to the uncertainty around it just as the U.S. stock market rally slowed in the past week.
The was down nearly a percent at 2,191 in the past week, its first weekly loss in four weeks. Treasury yields were slightly higher after an extremely volatile week, with the U.S. 10-year at 2.39 percent Friday after nearing 2.5 percent Thursday.