March 24, 2017
The US stock market closed lower on Friday as the Trump administration’s struggle in Congress to repeal Obamacare heightened concerns about its ability to drive through an economic agenda that had spurred equity valuations to fresh records.
The S&P 500 ended down 0.1 per cent to 2,344 reversing a 0.4 per cent advance earlier in the day, as investors absorbed the news that the House of Representatives vote on a new healthcare bill had been postponed.
“Another nervous session of headline watching is likely today as President Trump takes a high-risk gamble to push the House to vote on healthcare reforms,” said Shaun Osborne of Scotiabank.
In Europe, the pan-European Euro Stoxx 600 fell 0.2 per cent, while the US dollar index was off 0.2 per cent.
Some investors have become worried that the political wrangling over healthcare legislation augurs badly for the prospects of the tax reform and fiscal stimulus that the White House has promised. The concern contributed to the S&P 500’s drop on Tuesday of 1.2 per cent, its first decline of more than 1 per cent since October.
The week has been marked by the biggest redemptions from US equity funds since last June, with roughly $9bn being withdrawn, according to EPFR. “Investors had a rethink this week about the ‘Trumpflation’ narrative that had underpinned the post-election rally,” said Neil MacKinnon of VTB.
That has taken some further momentum from the dollar, which in the final two months of 2016 benefited from expectations that the new administration’s economic policies would force the Federal Reserve to quicken their planned pace of rate rises. The dollar index — a broad gauge of the currency — is down 1.5 per cent in March.
“Our indicators suggest that the dollar looks quite vulnerable now and any bounce in the dollar today might prove temporary,” said Standard Bank’s Steve Barrow.
However, others cautioned against overreacting to the difficult passage of the healthcare bill. Kit Juckes, a strategist at Société Générale, said “in the bigger scheme of things, whether this bit of his agenda gets through or not isn’t really an indicator of whether he can get tax cuts through, let alone a gauge of whether the economy can continue to grow.
“But in the short term, it may tell us whether the path towards 3 per cent 10-year Treasury yields requires a diversion to 2.3 per cent first, or not.”
The yield on the 10-year note, a global benchmark for sovereign and corporate borrowing that was at 1.86 per cent before the US election, was a touch stronger on the day at 2.41 per cent.
“Fiscal frustrations are now bubbling to the surface in financial markets — the dollar and yields have reversed almost a third of their post-presidential election rise as investor wake up to the fact that the fiscal policy will not come through on the timetable and to the scale that many had originally hoped,” said Alex Dryden of JPMorgan Asset Management.
Strategists also pointed to the potentially rougher ride ahead in the US Senate — and for the US currency — even if the bill manages to pass in the House on Friday.
Additional reporting by Michael Hunter
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