Trump Trade In Focus: All Eyes On Healthcare Bill As Yellen Lurks In Background

Let’s start with the yen on Thursday which, you’re reminded, hit its highest level against the greenback since November on Wednesday as the dollar fell a sixth day.

Well on Thursday, the dollar stabilized along with yields on 10Y Treasurys which dipped to 2.37 (a three week low) at one point yesterday.

Of course everything is trading off the ACA repeal vote on Thursday. After all, the more difficulty this thing has getting through, the greater the chances that the rest of Trump’s agenda will get delayed and that agenda includes everything markets (and especially stocks) have already priced in. Namely, tax reform and fiscal stimulus.

“Dollar/yen rebounded from Wednesday’s low after stabilizing U.S. Treasury yields helped underpin dollar as markets turned focus to vote on health-care bill in U.S. Congress that could affect implementations of Trump’s fiscal expansionary measures,” Bloomberg wrote this morning. “There may be many investors seeking to buy dollars on dip below 111 yen and if the health-care bill passes, dollar/yen can rebound to 112 levels,” Hiroshi Yanagisawa, a dealer at FX Prime by GMO Corp. in Tokyo remarked, adding that “rejection of bill could push USD/JPY to below 110, sparking some kind of comments from authorities.” Gotta love that. “Some kind of comments.”

Speaking of Treasurys, at least one trader is out this morning reinforcing a point we’ve been making for weeks. It could very well be that what you’re seeing in falling yields is more than just short covering or traders expressing daily dismay at the snail’s speed of Trump’s growth-friendly agenda. Rather, falling yields could mean that the market isn’t confident in the outlook for growth more generally. Here’s Bloomberg’s Wes Goodman:

The 10-year at 2.41% is less than when the Fed raised rates March 15. If it falls much more, it’ll be back within 1 percentage point of the record low of 1.32% set in July
The two-year spread over the federal funds rate is collapsing, indicating investors are scaling back bets on Fed rate hikes
TIPS break-even rates are falling
The spread between five- and 30-year yields is near the lowest level since 2007
A gauge of expectations for the Fed show some traders have yet to be convinced there will be another rate hike this year
The bond market is known for disappointing investors who bet on faster growth and higher yields. Judging by the way things are going, the odds of it happening again this year are growing

In short, if you’re still short, it might be time to run for cover (literally).

Here’s SocGen’s overnight take:

You could capture over night market moves in a handkerchief. USD/JPY has broken though the bottom of its range, but hasn’t kicked on yet, just as EUR/USD has broken above 1.08 and then gone to sleep. Equity indices are up across Asia, but barely. Bond yields are range-bound. Commodities are consolidating. All eyes are on the health care Bill which will be debated in the House of Representatives later today. Conventional wisdom is that President Trump hasn’t secured the votes necessary for passage of the bill and the market take on that is that it exposes the Trump rally’s shaky foundations.

Right. So not a creature was stirring – so to speak. This is what global equities look like as everyone tries to mop up the blood from Tuesday’s selloff on Wall Street and the knock-on damage it caused Wednesday across regional equities.

Nikkei up 0.2% to 19,085.31
Topix up 0.01% to 1,530.41
Hang Seng Index up 0.03% to 24,327.70
Shanghai Composite up 0.1% to 3,248.55
Sensex up 0.3% to 29,262.30
Australia S&P/ASX 200 up 0.4% to 5,707.95
Kospi up 0.2% to 2,172.72
FTSE 7316.32 -8.40 -0.11%
DAX 11933.37 29.25 0.25%
CAC 4996.42 1.72 0.03%

Look, really all you need to worry about today is the healthcare debate. That’s all that matters – or at least in the minds of traders. Note the bolded passage in the following quote from Bloomberg:

Most Group-of-10 currencies traded sideways and in tight ranges as investors stayed on the sidelines before a U.S. Congress vote on health-care reform that could either reignite reflation-trade dynamics or further pressure the dollar and U.S. yields.

That’s the setup. If this bill gets shot down and the dollar moves lower as a result, well that could very well continue to torpedo the reflation trade just as it did on Tuesday. See our full ACA repeal preview here.

We’ll get claims as usual today. Here’s the docket: