Markets sniffle over American Healthcare Act

Signs of life reappeared on Thursday when stocks got an afternoon pop and havens like gold and the Japanese yen pulled back from earlier gains.    

The two percent retreat this week in the context of the epic rally that preceded it barely deservers the moniker of ‘caution.’ Still, the post US-election euphoria is visibly beginning to ebb. We view the Trump rally as a meaningful display of investor confidence but such extreme bullish sentiment means a consolidation is way overdue.   

A lot of emphasis is being placed on the vote in the US Congress on the new Republican healthcare bill. At the moment the bill appears to hanging in the balance as conservatives bicker with themselves as to whether the ‘replacement’ does enough ‘repealing’. Whether the bill passes or fails on the first attempt, stocks have likely entered a correction phase anyway.    

New details of the terrorist attack on London Bridge from Prime Minister Theresa May seemed to have had a negligible impact on typically sensitive areas of the market like travel and leisure sectors.

Next lifts the FTSE

Clothing retailers led gains on the FTSE 100 after investors took solace in unrevised forecasts from Next after it reported its first annual profit drop in 8 years. Lord Wolfson of Next appears acutely aware of the macro risks facing the clothing sector from shifting tastes towards ‘experience’ to higher input costs. Something Next is less keen to flag up is that its catalogue/online business faces a lot more competition these days. A pair trade in the retail sector going long Boohoo and short Next would have produced strong returns over the past year.   

A rebound in UK retail sales in February coupled with a mix of broker upgrades and downgrades saw diverging fortunes amongst supermarkets with Tesco seeing gains while Sainsbury dropped into the red.