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Will US healthcare failure shake investor confidence?

After a week dominated by questions over whether Donald Trump will be able to push his economic agenda through Congress, here are the questions FT markets reporters are asking in the final trading week of March.

Will investors keep faith in Trump’s ability to drive tax cuts?

That is the question facing equity markets after the White House failed to muster the support needed in the House of Representatives to pass an alternative to Obamacare. With Mr Trump and Paul Ryan, the speaker of the House, pulling the bill shortly before the stock marked closed on Friday, there was little time for reaction.

Some on Wall Street argue steering a measure of tax cuts through Congress will be easier than healthcare proved. “Ultimately, we believe there will be broad support among Republicans in Congress for legislation that reduces the corporate tax rate and cuts personal taxes modestly,” notes Alec Phillips, an analyst at Goldman Sachs. Indeed, others go further and claim the rapid implosion of efforts to pass new healthcare legislation means Congress will be able to tackle tax legislation sooner.

We should soon discover whether such predictions are optimistic.

Can Brent crude stay above $50?

The world’s main oil benchmark briefly dipped below $50 a barrel last week, setting off a round of mild panic in executive offices in Houston and the oil ministries of Opec members.

But so far Brent has held the line. If US shale production keeps rising, a further move south cannot be ruled out. However, Opec’s production cuts, which started in January, should start feeding through to the market.

The 13-member cartel is holding a monitoring meeting in Kuwait over the weekend where they will look to keep up the pressure on the group and its partners to sustain the supply cuts in the hope stronger demand in the summer months will keep the price recovery going.

What is the US junk bond market telling us?

Three makes a trend. For investors in high-yield corporate debt — the speculative rated bonds that are riskier than their investment grade counterparts — three consecutive weeks of outflows is sapping what was a buoyant start to 2017. While the redemptions from junk bond funds have slowed, the asset class has shown some cracks.

New bond sales have slowed after an exuberant start to the year, as attention shifts to policy wrangling in Washington. US junk bonds are now on track for their worst monthly performance since January 2016, when the market suffered a broad sell-off amid the oil price decline and fear of steep economic slowdown in China.

The dip in oil prices has once again come to the fore, as Brent crude hovers above $50 a barrel and its US counterpart trades below $48. High yield energy bonds, which are roughly 14 per cent of the total US junk bond index, have lost 2.2 per cent so far this month, worse than the index average, according to Bank of America Merrill Lynch.

Several investors have looked at the recent weakness as a chance to buy back in, and the major junk bond ETFs — SPDR’s JNK and iShares’ HYG — both moved back above their trailing 100-day moving average over the past few days. The indices are closely watched by equity investors, due to the correlations between the two asset classes. The question now is if further weakness in high yield foreshadows a sharper pullback in stock markets?

How will the pound fare once Article 50 is triggered?
Nine months after UK voters choose Brexit, prime minister Theresa May will on Wednesday trigger Article 50 and begin the two-year negotiation of Britain’s exit from the EU.

In the short term, analysts expect sterling to fare reasonably well. It could prove a moment of “sell the rumour, buy the fact” when Mrs May sends her official letter. It is expected to take a month for the EU to deliver a response.

Sterling, which has climbed 1.2 per cent against the dollar so far this year, is enjoying other tailwinds at the moment. There has been a build-up of heavy short sterling positions, which could start to be unwound if expectations for interest rates in the UK head higher. Strong retail sales figures for February snapped a run of weaker consumer data, pushing the pound above $1.25. Meanwhile, the dollar continues to languish on Trump trade disappointment.

Although sterling may enjoy a good start to the second quarter, few foreign-exchange strategists willing to be bold in their forecasts. Triggering Article 50 trigger should not be a major event, says Valentin Marinov at Crédit Agricole, but “uncertainty about the UK’s ability to make a trade deal with the EU and the related concerns about the UK economic outlook should continue to make GBP a sell on rallies”.

Reporting by David Sheppard, Eric Platt and Roger Blitz

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