Senate Health Care Bill Facing Hurdles - Implications For Investors

 | Jun 23, 2017 10:27

Originally published by AxiTrader

Market Summary

Oil stabilised overnight and the Republican Senate leaders announced their health care bill is ready to go in the US. That, and the very strong Canadian retail sales data were the big stories of an otherwise fairly quiet night.

At the close the S&P 500 dipped 1 point to 2434, the Dow Jones Industrial Average lost 13 points to 21,397, while the Nasdaq was up 4 points at 6,236. The big stocks of Europe didn’t move much either and SPI traders here in Australia have only marked prices up 6 points after yesterday’s 40 point rally.

On forex markets, the Canadian dollar and kiwi were the standouts. Canada because its retail sales data suggests the BoC might be moving soon and the kiwi because the RBNZ didn’t do anything overt to knock the NZ dollar lower. That’s hurt the AUD/NZD cross and the Aussie dollar outright remains under pressure as well. Euro and yen are calm and sterling is trapped as the battle at the BoE confuses traders.

As noted above oil was a little higher, gold as well while commodities were mixed.

Not a lot out today other than the preliminary reads of Markit PMI’s for the month.

h2 Here's What I Picked Up (with a little more detail and a few charts)/h2 h2 International/h2
  • US POLITICS: Donald Trump doesn’t have tapes of conversations with James Comey. The president admitted that overnight. More importantly perhaps though is that the Senate’s health care bill is ready for a vote. So far though 4 Republicans have said they can’t vote for it with another few saying they aren’t yet sure and are talking to constituents in their states. That the GOP and president need this is no understatement politically. More importantly though because of the nuances of US budgetary policy and rules the resolution to health care is a prerequisite to president Trumps tax plans. Or at least they become more problematic to structure if health care is not resolved. Watching this space.
  • US jobless claims were a little higher last night up 3,000 to 241,000. The four-week moving average is at its highest level since April. But at 244,750 that number is still very low relative to history and the size of the US economy these days.
  • The ECB said in a monthly report last night that it sees strong growth in Q2 while inflation stays around the current low levels. “Domestic demand is expected to be buoyed by a number of favourable factors,” the bank said adding “very favourable financing conditions and low interest rates continue to promote a recovery in investment in the context of rising profits and lower deleveraging needs.”
  • Also at the ECB, chief economist Peter Praet said that when the bank winds down its QE bond buying program governments in Europe are going to simply have to suck up the inevitable rise in bond rates and borrowing costs. “If the spreads for a particular country rise, that’s not a monetary policy problem,” he said.
  • And before I leave Europe the EC president seemed to hold out the chance of a Brexit reversal overnight at a meeting with Theresa May. He channelled John Lennon’s Imagine saying that many British friends had asked him if the whole thing could be unwound. “"You may say I'm a dreamer, but I am not the only one,” Tusk said.
  • China doesn’t have the same balance sheet problems as the Fed a prominent PBoC adviser said yesterday.
h2 Australia/h2
  • The S&P/ASX 200 had a pretty solid rally yesterday rising 40 points to 5,705. That gain of 0.7% was about half the fall of the previous day. The rally looked “bargain huntery” in type and the market finished around 20 points off its highs.
  • Where to today, and next week as we head toward the end of the financial year is an interesting question. Volatility begets volatility and we’ve had plenty of that in the past few week’s here on the ASX with big falls, sharp reversals, and more falls. Upside volatility, like the performance of the S&P/ASX 200 yesterday, is still volatility. Can the market build on those gains today? As long as the lows of yesterday hold then the answer is yes.
  • SPI traders are suggesting a mildly stronger day ahead having marked the SPI 200 contract up 6 points overnight. In Many ways though it depends on how investors feel about the South Australian government’s bank tax and whether or not they think other states will pile in as well.
  • Yesterday I wrote in my Aussie dollar column that I get a sense that global investors are moving on from Australia. This bank tax might just accelerate that trend. We now have a federal and state bank tax, we have the government intervening in the gas market, and we have worries about household debt and financial stability. This will take more than one day or one month to play out. But from an investors point of view one thing they never had to consider when investing in Australia must now be factored into the decision-making process – political risk. Time will tell.
  • On a more positive front quarterly employment data from the ABS yesterday was some good news for the economy. Employment was up 133,500 in the three months to May which was the strongest performance in over 2 years. Naturally it’s the services sector driving the growth. But the key for me is that with more Australians working that means more Australians getting a paycheck which means more Australians spending which increased the money flowing through the economy and helps business. It then feeds back into services employment – in particular – in a virtuous circle for the economy.
h2 Forex/h2
  • Central bankers and the outlook for monetary policy are still to the fore in currency markets. Yesterday in Japan BOJ deputy governor Iwata said there was no chance of higher rates in Japan because the economy still needs the support of “powerful” easing given the inflation target was far from satisfied. Overnight however outgoing BoE MPC member Kristin Forbes said that the UK is at risk from the pounds fall and inflation shooting higher still. She’s off the MPC at the end of the month but her words again highlighted the battle at the BoE.
  • In the end though this battle over the policy outlook and the divergence between where markets see moves and where central bankers are telling us rates are heading keep forex markets fairly rangebound overnight.
  • Euro is down o.2% at 1.1146, USD/JPY is off less than a tenth of a point at 111.30 and the pound is barely changed against the dollar at 1.2675 this morning. That was despite Forbes comments and the news from the CBI that factory orders in the UK hit their highest level in 30 years during May. Export orders were the highest in 22 years. Ah, the soothing effects on an economy of a weaker currency.
  • Elsewhere the USD/CAD rally faltered with the Canadian dollar 0.7% higher this morning after much stronger than expected retail sales for April. The rise of 0.8% was four times what the pundits had forecast for the month. So, together with oils mild recovery, the Canadian dollar caught a bid and USD/CAD is back down at 1.3244.It’s a full reversal of the previous day's gains as traders guess that maybe governor Poloz and his colleagues at the BoC will be moving policy sooner rather than later.
  • Closer to home the kiwi is still doing well after yesterday morning’s RBNZ decision. That governor Wheeler tried to signal rates won’t be rising in a hurry was completely overshadowed by what’s looks like it might have been positioning by traders for a dovish hold and more overt comments or action on the NZD/USD rate. So the kiwi is up 0.65% at 0.7270 and just below trendline resistance.
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