“They Can’t Afford Another Humiliating Defeat” – Fund Managers, Analysts Weigh In On The Road Ahead

The question on everyone’s mind heading into the new trading week is this: “what the f*ck are we going to do now?”

The entire reflation narrative (at least in the US) hinged on tax reform and fiscal stimulus. The problem: tax reform and fiscal stimulus hinged on ACA repeal. Now that “repeal and replace” is dead, traders want to know if the reflation narrative died with it.

They’ll be plenty of banter about “moving ahead” with tax reform, etc. but the bottom line is that no one knows what happens next. But they’ll be no shortage of people willing to guess. Below, find a summary of fund manager and analyst opinions compiled on Sunday by Bloomberg (do note the perceptible tendency to try and spin this positive).

Via Bloomberg

AMP CAPITAL (Nader Naeimi)

  • Good news is that Trump and Congress are likely to “pivot hard” on economic growth agenda with tax reform right at the center
  • “They can’t afford another humiliating defeat”
  • Any short term market declines are likely to be “shallow”
  • Focus is on tax reform now, might shift to import tax to fund corporate, possible export tax cuts
  • Might lead to short-term anxiety in the markets
  • Has raised cash levels in his funds, will look for opportunities to buy selectively into cyclical sectors on a possible correction over the coming weeks

IG LTD. (Chris Weston)

  • Markets see tax reform as a “greater economic issue,” some traders may be relieved that they don’t have to navigate around headlines about the Senate vote
  • Sees short term tailwinds for some health-care companies with U.S. exposure
  • Semantics into Australian health-care names should be “largely positive”
  • Market likely to switch to European political issues, global economics and possibility that an interest rate hike from the Fed in June is either too high or low

STANDARD CHARTERED (Clive McDonnell)

  • Deciding to “park” ACA reform and focus on spending political capital on tax reform seen as a positive outcome
  • Tax reform is potentially positive for growth and corporate earnings
  • Healthcare bill failure may be positive for Indian generic drug manufacturers; sees limited impact on Chinese, Thai, Singapore health-care stocks as they are “domestic orientated”
  • Tax reform is the next big focus for investors in the U.S., expects bond yields to rise on greater likelihood of corporate, personal tax cuts
  • Border adjustment tax is part of U.S. tax reform, could be negative for Asia, European markets

TEMPLETON EMERGING MARKETS GROUP (Mark Mobius)

  • Sees “mixed picture” for pharma prices on the defeat of Trump’s legislation
  • Global pharma companies weren’t hurt by Obamacare with GlaxoSmithKline, Pfizer, MSCI World Pharma Index all up more than 10% since November/December
  • Need to wait and see if the expected favorable pharma price results lap over to the emerging markets pharma companies

THINKMARKETS (Matt Simpson)

  • Republicans have failed to free up budget which is needed to offset their tax overhaul, fund fiscal stimulus
  • Stocks likely to remain under pressure if traders suspect that anticipated tax cuts for corporations won’t materialize
  • Trump may be happy to see the U.S. dollar under pressure as traders still doubt whether three interest rate hikes will happen this year
    • Without tax cuts or fiscal spending, there’s less reason to bid the dollar
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