The Backpedaling Dollar

The Backpedaling Dollar
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(March 27, 2017) The markets may have been somewhat relieved of the reaction to the failure of the Healthcare Bill on Friday evening, the Dow Jones falling just 0.29% or 60 points, with the Dollar Spot Index ending the day down just 0.13%.

Perhaps the markets were in a state of shock, or there was a need for the Asian markets to share their thoughts, but the Trump Dump looks set to consume the markets today, the Dollar Spot Index down 0.48% going into the European session.

We were certainly expecting a more aggressive response and the U.S administration’s handling of the Healthcare Bill failure in the days ahead will largely dictate whether the Trump trade, which drove the Dow to 21,000 from the lowly sub-18,000 levels the weekend before the election, and the Dollar Index from 97.065 to a year high of 103.82, will reverse.

At the European open, equities are on the slide with the Dow Futures pointing to a 169 point loss, the risk off sentiment driving appetite for gold and the Yen, gold up 1.17% at $1,258.55 and the Dollar – Yen down 1.03%.

The sell-off comes at a time when the markets were already in doubt on whether the U.S administration will be delivering the promised and much talked about $2bn fiscal stimulus package, Trump’s rebuild America plan appearing to unravel, or so the market thinks.

It certainly doesn’t look good, particularly when considering the fact that the Republican’s rule the roost in both houses, the expectations of savings from the Obamacare repeal supporting the next item on the list, tax reforms…

The negative sentiment towards Friday’s collapse of the Healthcare Bill is likely to be overdone, the U.S administration certainly not expected to spend the next 4-years failing to deliver, but the issues faced in-House so soon after Trump’s inauguration does raise questions over his ability to unite America, when he seems unable to unite the Republican Party.

Talk of the Yen hitting sub-¥100 levels have started doing the rounds and the EUR could well begin to make a run at $1.15 levels should the negative sentiment persist, hopes of reflation having driven the Dollar on expectations of the need for a more hawkish FED.

We had seen market volatility look more like a mill pond than charts we are more accustomed to seeing, particularly with so much uncertainty and the markets have finally woken, the rally having been on a promise and little more.

A lack of macroeconomic data through the U.S session will leave investors with little to consider other than the promise of tax reforms and a fiscal stimulus package and, more importantly, whether these are just promises or likely to be voted through by the Republican majority houses.

It’s going to be a tricky one for the administration, particularly when considering the debt ceiling issues the administration is likely to face in the months ahead. If anyone was of the view that the U.S president would have a free ride, it’s clearly not going to be the case.

While the correction is perhaps justified, one does question whether it’s warranted, the Healthcare Bill certainly not one that the markets were particularly interested in, tax reforms and a fiscal stimulus package of far greater relevance.

Lessons will have undoubtedly been learned and Trump is unlikely to falter at every hurdle. The weaker Dollar will undoubtedly be well received by the administration, but there will undoubtedly be opportunities for those who missed out on the last rally, with those who held back from piling into the Dow at 21,000 levels certainly feeling vindicated today.

We can expect Dollar weakness and the risk-off sentiment to persist through the day, a more sinister sell-off through the week only likely if the Dow tanks tonight, Dow Futures losses easing to a 134 point slide at the time of the report. The Dollar –Yen has made a slight recovery to ¥110.236, while gold holds its ground at $1,258.22, an intraday gain of 1.18%, with the Dollar Spot Index recovering from an intraday low of 99.038 to 99.135 at the time of the report, a 0.48% loss on the day.

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