The importance of House

The Day So Far

Three topics to discuss this morning that being the UK retail sales report, the ECB’s TLTRO announcement and today’s vote on healthcare reform in the US. Starting on our own shores and the retail sales report for February exceeded market expectations but was subject to downward revisions. Although the GBP took a pop higher to a one-month high the move was largely contained and when put into the perspective the underlying three-month decline for the sector is the worst since March 2010. Aside from the data the other factor helping keep Cable above water is commentary from Bank of England MPC member Ben Broadbent who said that it is quite possible that interest rates could go up. Now although this would appear to be more policy makers joining the lone dissenter, Kristin Forbes in turning hawkish, to me this is more a case of managing expectations and letting the market know that they are ready to act to counter rising inflation if necessary.

Moving over to Europe and today marks a minor milestone in gradually unwinding the ECB’s crisis management with the last TLTRO receiving a take up of EUR 233.5bln from 474 bidders. Although this was larger than median expectations of EUR 110bln, it was far smaller than some outside estimates that it could have been as large as EUR 750bln. Since the release, the EUR and Dax have seen a moderate bid tone. Arguably the bigger event for the market is what the outcome will be in the US House vote on healthcare reform later this evening. President Trump has been busy cajoling a group of House conservatives known as the Freedom Caucus who are the real power brokers in this situation with the ability to influence enough members to impact the over passage of the repeal. The reason for the heightened significance of this event is because the market is viewing this as a litmus test as to what Trump can ultimately achieve and with the US equity market at levels deemed the most overvalued since 2001 in a recent BofAML survey, any failure on this healthcare measure will likely put pressure on US indices as markets will see this as delaying more important fiscal reforms ahead.

The Day Ahead

Today’s session has the propensity to be a quiet one given the aforementioned importance associated with today’s House vote. As such, I would be relatively conservative in this market until clarity emerges on the issue which may not come until overnight as Trump continues his charm offensive to persuade Freedom Caucus members at 3.30pm London time to join him. Having based his Presidential campaign on the back of being a person of action and not words he will know full well that failure today could have a sizeable impact as to future reform plans and his overall popularity. In the meantime, there are two important Fed speakers today in the firm of Fed Chair Yellen and uber-dove Kashkari, neither of which I am expecting fireworks from as they repeat their existing stances.