Good morning,
Trumpcare goes down in flames
The dollar has been taken lower through the overnight Asian session following the failure of the Trump administration to corral enough support to their healthcare proposal to even think about having a vote; the litmus test has been performed and the results are not good for the assets that depend on Trump sentiment remaining strong to make sure they themselves do not wither.
The Trump trade has been a very general rise in equities and the US dollar following the election. This has been tempered somewhat since the inauguration and the Trump administration’s first 2 months in office during which very little has been achieved. Our focus on Trump has always been what happens in the first 100 days and by that measurement you have to be concerned about the impact of further defeats; you had better hope that his golf game is getting better because that is about the only thing he seems happy to concentrate on.
Prospects for Trump reforms seriously damaged
Healthcare in itself is, from a global macroeconomic and market points of view, not that much of a big deal but there are some serious issues within it. The supposed budget savings from repealing Obamacare, estimated at $1trn over the course of the next 10 years have disappeared like an errant tee shot. Trump needed these to pass tax reforms that only requires a simple 1 vote majority in the Senate as opposed to a 10 vote majority that non-budget tax neutral changes need.
Similarly, the weakness shown by the White House and the Republican leadership in the House and Senate will make markets very unwilling to price in ‘animal spirits’ or raised expectations from chatter around a border adjustment tax or tax breaks for the wealthy or sanctions on China; the fact that Trump is not a busted flush yet but a disorganised and infighting Executive branch of the government means that normally slow, incremental progress will likely grind to a halt.
The dollar is weaker this morning and there is little today to suggest a recovery. The political focus stateside now shifts to the Budget and with it the chances of a governmental shutdown have leapt.
Brexit begins in 48hrs
In the UK this week Theresa May will instruct the UK’s Ambassador to the European Union to deliver notification of the trigger of Article 50 and formally begin the process of pulling the UK out of the European Union. I personally do not think that this will upset the pound’s apple cart too much at all and, in fact, conditions are ripe for a rebound in the pound. The amount of times events have played out in a ‘buy the rumour, sell the fact’ type mentality could easily see the pound’s negativity since the Brexit vote be reversed.
Some moves in options markets have increased the belief that there is however a little bit of nervousness before the trigger.
Arguments over the Brexit bill and the rights of EU citizens in the UK and Brits in the EU will stymie efforts to get talks of a trade deal off the ground in the short term while European political watchers are more likely to be focused in on what is happening in the French Presidential elections.
Our outlook piece on what happens to the UK and the pound post Article 50 will be published later this week and our webinar will take a deeper look at where the risks to your business lie in these markets.
If you haven’t registered already, you can do here.
The Day Ahead
Elsewhere the data calendar is pretty quiet but things heat up as the week goes on.
Have a great day