Greg Gibbs, Director at Amplifying Global FX Capital, explains that there is much discussion in the market that the fall in US equities, US yields, and the US dollar relate to the vote on Thursday in Congress for the new US healthcare plan to replace Obamacare as the argument goes that if the Republicans can’t pass healthcare, they are going to struggle to pass more growth-supporting policies including tax reform and the so-called Trump rally is retracing.
Key Quotes
“There is also growing disquiet over alleged collusion between the Trump election campaign and the Russian government. And Trump’s shrill claims on various matters such as wire-tapping by Obama that either suggests he is trying to blow smoke over the Russia links or reveal an unhinged leader. Apart from an inner core of advisors, the fear may be that more conventional cabinet members and the broader Republican movement start to distance themselves from Trump. In which case, Trump may struggle to bring together Republicans in Congress to vote for his policies.”
“It’s not an insignificant risk that the Russia connection at some point leads to impeachment proceedings against Trump. Let’s say 5 to 10% for argument’s sake. Alternatively, it could be an issue that just never goes away and contributes to a divided Republican movement that struggles to stay focused on economic reform that the financial markets have anticipated.”
“The market must also wonder how Trump will handle relationships with North Korea and other geopolitical risks, and trade relations with other countries. The USD was shaky early in the week after the USA forced the G20 finance ministers to drop from its statement language that renounced trade protectionism over the weekend.”
“On Thursday, the House of Representatives vote on the Trump endorsed healthcare bill is a crucial test of the control Trump and Republican leadership have over their party. It is not the final hurdle for the bill that must also pass the Senate, but a failure in the House will be a major setback for Trump, and market confidence.”
“A vote for the bill is likely to see a relief rally in US equities, yields, and the USD. Attention will then turn to if the bill can pass the Senate, probably a week later. There are a number of Republican Senators that also say they oppose the bill. There are 100 Senators, 52 are Republicans. However, it is the demonstration factor that most matters to the market, and bringing enough Republicans together in the larger and more unwieldy House is more important. Passage of the bill in the House will be seen as pressuring the Senate to find a way to pass the bill, albeit potentially with more tweaks.”
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