All Eyes On Washington: US Futures Rise On Hope Healthcare Vote Will Pass

Asian shares and S&P futures rose on optimism that today's rescheduled U.S. vote on health care will pass following Trump's Ultimatum to the Freedom Caucus. European stocks gave up some of Thursday’s gains, falling for the fourth time in five days, and moving further away from a 15-month high reached a week ago while the yen weakened for the first time in nine days before the long awaited U.S. health-care vote that has dominated market sentiment this week. Oil was headed for a third weekly drop this month. Economic data include durable goods orders, Markit U.S. manufacturing PMI. Companies due to report earnings include Finish Line.

As Reuters notes, all eyes in global financial markets were fixed on stuttering Republican efforts to pass a replacement for Obamacare on Friday, with failure likely to undermine faith in Donald Trump’s promise to deliver a "phenomenal" U.S. tax reform. The White House's ability to get legislation through Congress is crucial to "Trumpflation" bets on fiscal stimulus, tax cuts and capital repatriation that markets late last year assumed would drive inflation and growth higher. Below are the latest developments on the House vote on American Health Care Act, aka Trumpcare.

  • The House delayed the vote on the AHCA bill amid doubts whether it could pass, with House GOP leaders later confirming the vote is to occur on Friday afternoon.
  • President Trump reportedly warned House Republicans he would leave Obamacare in place and will move onto tax reform if the healthcare bill fails in today's vote.
  • US Freedom Caucus Chairman Meadows said the Freedom Caucus is to meet and discuss the revised health bill and that the bill has improved. Meadows also stated that he is a 'no' right now, but has not made the final decision.
  • Congressional Budget Office released its scoring on the amended GOP healthcare bill which showed smaller savings over the next decade with the projected deficit reduction declining to USD 150bIn from USD 337b1n, while it maintained guidance that 14mln will lose coverage by 2018.

“No one has any idea what’s going to happen with this vote so they are sitting there waiting for actual information rather than theory,” said Ben Kumar, a London-based investment manager at Seven Investment Management, which oversees about 10 billion pounds ($12 billion). “In general you can ignore the politics and trade on the underlying fundamentals. The market is still fundamentally intact.”

"There is still a risk that the vote fails today, (and) there are numerous other uncertainties that suggest anything but a smooth course ahead for implementing the much anticipated tax reform reflation program," said MUFG currency strategist Derek Halpenny, in London. "We still expect a much smaller tax cutting program simply due to the inability to agree on how a large program could be financed. The Trump reflation trade could still reverse course in a more meaningful way, resulting in dollar weakness."

In Europe, the STOXX 600 Index dropped 0.5%, extending its weekly decline, with insurers and energy companies the biggest losers, as trading volumes dropped by almost a third from the previous week. The drop comes despite stronger than expected PMIs across the board for both Germany and France.

  • France Manufacturing PMI, actual 53.4, est. 52.4, prior 52.2
  • France Services PMI, actual 58.5, est. 56.1, prior 56.4
  • Markit France Composite PMI, actual 57.6, est. 55.8, prior 55.9
  • Germany Manufacturing PMI, actual 58.3, est. 56.5, prior 56.8
  • Germany Services PMI, actual 55.6, est. 54.5, prior 54.4
  • Germany Composite PMI, actual 57, est. 56, prior 56.1

The yen halted its longest rally since 2011 as U.S. lawmakers hurtled toward a vote on an amended health-care bill after a delay that fueled speculation President Donald Trump may struggle with other policies. Bonds were mixed, and oil rose for the first time this week even as a rotation out of growth sectors into safe utilities continued.

The Stoxx Europe 600 Index was down 0.5 percent as of 6:34 a.m., trimming the previous day’s brisk gains. Aegon NV weighed down insurers after it cut its Solvency II ratio. Japan’s Topix trimmed some losses for a week that included the biggest one-day drop since Trump’s election. The index finished with a 1.4 percent decline for the week. The MSCI Asia Pacific fared better, with a 0.1 percent decrease. Futures on the S&P 500 climbed 0.1 percent. The index fell 0.1 percent on Thursday.

The dollar recovered some ground against the yen, however, after U.S. Treasury yields inched higher in Asian time, halting an eight-day losing streak that is its worst since the end of 2010.

Bank of Japan Governor Haruhiko Kuroda told a Reuters event on Friday that there was "no reason" to raise the bank's bond yield targets now with inflation so far from its 2 percent target.

A sell-off in a number of commodities markets has also been a factor in the weakness of share prices this week. Iron ore prices fell for a fourth day on Friday and are on course for their worst week since December. Crude inched higher, supported by a fall in Saudi exports to the United States, but remained under pressure from a glut of supply that OPEC curbs has broadly failed to stem. Thomson Reuters data shows OPEC shipments to Asia, the world's biggest and fastest-growing oil-consuming region, are up more than 5 percent since January, suggesting the group of producers is shielding its main customers from the reductions. Unless OPEC extends the curbs beyond June or makes bigger cuts, traders say oil prices are at risk of falling further.

"OPEC's goal of drawing down inventories to normal levels is not going to be reached before their agreement expires on June 30," said U.S. investment bank Jefferies in a note to clients.

Leaders from European Union countries except the U.K. meet Saturday on the 60th anniversary of the bloc’s founding Treaty of Rome to discuss the way forward after Brexit. Meanwhile, representatives from five OPEC and non-OPEC members gather for a meeting of the Joint Ministerial Monitoring Committee to oversee oil production cuts.

* * *

Bulletin Headline Summary from RanSquawk

  • Stocks reside modestly negative in Europe as participants await news regarding the litmus test of Trump's power in the form of his healthcare bill
  • EUR gains with Europe encouraged by strong PM! surveys
  • Today's highlights include Eurozone and US manufacturing and services PMIs, US Durable Goods Orders and comments from Fed's Evans, Williams, Bullard and Dudley

House vote on American Health Care Act

Market Snapshot

  • S&P 500 futures up 0.1% to 2,341.75
  • STOXX Europe 600 down 0.5% to 375.7
  • MXAP up 0.4% to 148.01
  • MXAPJ up 0.08% to 478.73
  • Nikkei up 0.9% to 19,262.53
  • Topix up 0.9% to 1,543.92
  • Hang Seng Index up 0.1% to 24,358.27
  • Shanghai Composite up 0.6% to 3,269.45
  • Sensex up 0.5% to 29,488.44
  • Australia S&P/ASX 200 up 0.8% to 5,753.55
  • Kospi down 0.2% to 2,168.95
  • German 10Y yield rose 1.0 bps to 0.441%
  • Euro up 0.1% to 1.0798 per US$
  • Brent Futures up 0.3% to $50.69/bbl
  • Italian 10Y yield rose 0.9 bps to 2.272%
  • Spanish 10Y yield rose 2.2 bps to 1.753%
  • Brent Futures up 0.3% to $50.69/bbl
  • Gold spot down 0.2% to $1,242.62
  • U.S. Dollar Index down 0.1% to 99.71

Top Overnight News via BBG

  • Trump Dares GOP Into High-Stakes Vote on Troubled Health Bill
  • Uber Rival Grab Said Raising $1.5 Billion in New Funding Round
  • EU’s Juncker Says U.K.’s Brexit Bill Will Be Around $62 Billion
  • Bayer Says Not Aware of Rejection of Monsanto Deal From India
  • Monsanto Roundup Users to Question Ex-EPA Manager in Cancer Suit
  • U.S. Equities See Biggest Outflows Since Brexit Vote: BofAML
  • Watchmakers Like Mondaine Confront U.S. ‘Consumer Blockage’
  • Euro-Area Economic Momentum Bodes Well for Wage Growth and Jobs
  • Fed’s Kaplan Says MBS and Treasuries Should Both Be Rolled Off
  • U.S. Biodiesel Producers File Trade Case Against Argentina
  • Atanor Said to Sell Second Sugar Mill to Argentine Grocery Mogul
  • Indonesian Govt Sees ‘Good Progress’ in Talks With Freeport

* * *

Asian markets trade mostly higher in the last day of the week as local stocks shrugged off a cautious tone on Wall Street where a delay in the healthcare bill vote dampened sentiment. ASX 200 (+0.8%) was led by the Healthcare and Financial sectors, while Nikkei 225 (+0.9%) benefited as USD/JPY recovered some ground. Elsewhere, Hang Seng (-0.1%) and Shanghai Comp. (+0.2%) traded choppy as participants digested earnings including CNOOC which posted its worst results in 5 years, while the PBoC also refrained from open market operations and stated that liquidity in China's banking system is relatively high. Finally, 10yr JGBs were lower amid the increased risk appetite in Japan and after the latest weekly securities transactions data showed foreign investors upped their selling of Japanese bonds, while underperformance in the curve was seen in the belly.

Top Asian News

  • BOJ Sells Bonds With Repurchase Agreements First Time Since 2008
  • Kuroda Sees No Problems for BOJ Bond Purchases in the Future
  • Huishan Dairy, Muddy Waters Target, Sinks 85% in Hong Kong
  • Two-and-20 Era Cedes Way to No Fees Upfront as Hedge Funds Adapt
  • Carlyle, Tiger Global Buy Stake in Delhivery for More Than $100m
  • Nippon Yusen Cancels 2 Boeing 747 Airplane Orders
  • Japan’s JR East Pitches Minimal Delays to Win U.K. Rail Bid
  • Iron’s Rally Gives Way to Rout as China Futures Post Record Loss

Europe's final session of the week kicked off with major bourses trading in the red, albeit modestly so, with risk mood steady as the US healthcare vote moved to late Friday. Newsflow throughout the European morning has been light, with energy names leading the way lower, while the material sector outperforms. In credit markets, price action is rather muted with the next focal point for the market being next week's approach to quarter end, particularly given the recent squeeze in repos over year-end. Consequently, it is likely that positioning will take place ahead of this event.

Top European News

  • Credit Suisse Increases Bonuses; Bank Said to Weigh Stock Sale
  • Deutsche Bank Commits to London With New U.K. Headquarters
  • German Output Growth Accelerates as Costs, Employment Spike
  • French Companies Bet on Favorable Post-Election Business Outlook
  • Fillon Accuses French President of Plot to Destroy His Candidacy
  • U.K. Police Make Two More Arrests in London Terror Attack Probe
  • End of Winter Pushes U.K. Natural Gas to Longest Slide in Decade
  • Eni Becomes First Oil Major to Find Crude in Mexico Waters
  • Schaeuble: Greece Can Only Stay in Euro If It Undertakes Reforms
  • Nordea Cuts Correspondent Banking in Half as High Risk Area
  • Biotest to Seek New Partner for Drug Rejected by ImmunoGen

Currency markets have been relatively subdued this morning, with traders looking for drivers given we must now wait until the end of Friday for the vote on healthcare in the US. This is set to resume just after the London close, so the JPY pairs in particular look set for some range bound trade ahead. USD/JPY continues to hold above 111.00, but is struggling for traction on the upside, despite US Treasury yields rising 3-4bps in the belly of the curve. EU PMIs came in strong this morning, and although much of this was to be assumed given the weakness of the EUR of late, traders bought the spot rate back up to 1.0800 in an isolated move, with USD/CHF moving the other way to suggest a USD based move. EUR/CHF was camped in the low 1.0700's, though we did see some modest upside in EUR/GBP, which is back around the 0.8650 level. Cable is still struggling with selling interest through the 1.2500 mark, so the EUR/GBP reaction is partially a result of this, with next week's triggering of Article 50 likely to limit the upside, but dip buying notable here in the wake of yesterday's much stronger than expected retail sales release. Indeed at time of writing, the spot rate is still pushing for 1.2500+. but resistance ahead of 1.2600 is very strong.

Commodities traders will be looking to tonight's vote on healthcare in the US as a measure of how president Trump's spending plans will fare through Congress going forward. We see few material moves of note other than palladium, which has extended to near 2 year highs. Gold has come back in line with the USD, but is pushing higher —modestly — as the greenback trickles back, but US Treasuries seeing little movement against this. Interesting news for Copper as the strikes in the Escondida mine look to end of 43 day run of inactivity. This looks to be a temporary measure though as workers agree to extend current contracts. WTI is still struggling below the USD50.00 mark, with all eyes and ears on the OPEC meeting towards the end of May to see whether the production cut agreement can be extended.

Looking at the day ahead, in the US the main focus is likely to be on the February flash durable and capital goods orders data where market expectations is for a +1.3% mom rise in headline durable goods orders and +0.5% mom rise in core capex orders. The flash PMI’s will also be out in the US this afternoon. Away from the data there is plenty of Fedspeak with the Fed’s Evans (12pm GMT), Bullard (1.05pm GMT), Dudley (2pm GMT) and Williams (5.30pm GMT) scattered throughout the day.  Of course the main focus will be on the healthcare bill developments.

US Event Calendar

  • 8:30am: Durable Goods Orders, est. 1.3%, prior 2.0%;
  • Durables Ex Transportation, est. 0.6%, prior 0.0%;
  • Cap Goods Orders Nondef Ex Air, est. 0.5%, prior -0.1%
  • 9:45am: Markit US Manufacturing PMI, est. 54.8, prior 54.2
  • US Services PMI, est. 54, prior 53.8
  • US Composite PMI, prior 54.1
  • 10am: Revisions: Wholesale sales and inventories

Central Banks

  • 8am: Fed’s Evans Speaks at Community Development Event
  • 9:05am: Fed’s Bullard to Speak to Economic Club of Memphis
  • 10am: Fed’s Dudley Speaks in New York at York College
  • 1:30pm: Fed’s Williams Speaks in Q&A

* * *

DB's Jim Reid concludes the overnight wrap

So it turns out we’ll have to wait a little bit longer for our first glimpse at how successful Mr Trump's legislative agenda might be. The breaking news yesterday was that House GOP leaders postponed Thursday’s planned vote on the Obamacare replacement bill. Following a behind closed doors meeting late last night between Republican lawmakers the White House said that a vote is planning to go ahead this afternoon in Washington although there is still no suggestion that Trump has garnered sufficient support at this stage following the discussions last night. Indeed the most significant comment that we’ve heard came from Republican representative Chris Collins who confirmed that there will
be “no more negotiations” and that “if it loses, we just move on to tax reform”. In other words, it sounds like Trump has issued his final ultimatum.

According to various news reports centrist Republicans were said to have balked at proposed changes to the minimum insurance benefits which had been negotiated between the President and Freedom Caucus. At the same time the Freedom Caucus are also said to still be unhappy about some of the finer details. In another twist, the Congressional Budget Office announced last night that the latest version of the AHCA (as of March 22nd) is estimated to result in a reduction in the deficit of $150bn over the next 10 years which compares to the $337bn reduction in the original version. The plan is also estimated to still result in 24 million more people being uninsured in 2026. The scope of any last minute changes is clearly not reflected in these figures but nonetheless, it’s hard to see the results as boosting the GOP’s cause at what is clearly a very tense time for negotiations.

While the announcement of a delay to the vote caused a little bit of retracing for risk yesterday, the actual magnitude of the moves wasn’t particularly eye catching. The S&P 500 finished -0.11% with healthcare stocks underperforming after the index traded as high as +0.44% in the early going while the Dow closed -0.02% having also been up a similar amount. There’s no doubt that the intraday ranges have been a lot more exciting over the last few days however.

The average of the last 3 days has been a 1.03% swing in the high to low points which compares to an average of just 0.53% for the rest of the year to date. Meanwhile credit retraced just less than 1bp of the move tighter yesterday while Treasuries and the Greenback were actually fairly unperturbed. The 10y finished at 2.419% which was +1.4bps on the day while the intraday range was 5bps. The US Dollar index closed +0.08% although didn’t really budge much in and around the headlines. The VIX did however finish nearly 8% up from the day’s lows, closing at 13.12 and with that, closing at the highest level this year. In commodities Gold faded to end the day down -0.29% while WTI Oil finished below $48/bbl again after dipping -0.71%.

Before we look at how the Asia session has followed up, it’s worth noting that as well as the obvious focus on the healthcare bill developments, or lack thereof, the release of the global flash March PMI’s today should make for a bit of a welcome distraction. In Europe the consensus is for a modest tick lower in the composite Euro area reading to 55.8, albeit a level which would still suggest a possible uplift in growth from recent levels. In the US the consensus is for a lift in both the services (to 54.0 from 53.8) and manufacturing (54.8 from 54.2) readings. So keep an eye on those later today.

To Asia now then where for the most part it’s been a fairly mixed session again, although there are no obvious signs of concern ahead of the health bill vote later today. While there are decent gains for the Nikkei (+0.99%) and ASX (+0.99%), the Shanghai Comp and Kospi are both little changed while the Kospi (-0.32%) is down slightly. US equity index futures are a touch higher while Treasuries have weakened a bit further following comments from the Fed’s Kaplan who said that 3 hikes this year remains a “reasonable” baseline. Kaplan also said that the Fed should begin to roll off both mortgage backed securities and Treasury holdings when it begins the process of letting its balance sheet shrink.

Moving on. While markets were unsurprisingly occupied with the health care bill developments there was also some focus on the ECB’s TLTRO II auction. Take up was higher than expected at €233.5bn compared to the consensus forecast for €110bn. A total of 474 bidders also took part which compares to 200 bidders in December. While we didn’t get a country breakdown we did see equity markets in Europe strengthen following the news with the Stoxx 600 finishing up +0.85% and the peripherals up a little more. European Banks also rose +0.75% while bond yields generally finished higher (2y Bunds +2.9bps, 10y Bunds +2.3bps, 10y Peripherals +1bp to +5bps). Financials credit also tightened with the iTraxx Senior and Sub indices rallying 2bps and 5bps respectively, outperforming iTraxx Main which finished 1bp tighter.

Away from that the data in the US was once again fairly second tier in nature. New home sales were reported as rising +6.1% mom in February and more than the +1.6% expected by the market, perhaps reflecting the relatively mild winter. Initial jobless claims ticked up to 258k last week which was a rise of 18k, although the four-week average continues to hover around the 240k area. Meanwhile the Kansas City Fed’s manufacturing index rose 6pts to 20 in March which is in fact the highest reading since March 2011. Elsewhere, in Europe the European Commission’s flash consumer confidence reading rose 1.2pts to -5.0 in March which was a little better than expected. In the UK retail sales excluding fuel also surprised to the upside after printing at +1.3% mom (vs. +0.3% expected) in February. The CBI’s Distributive Trades Survey for March also revealed that 32% of respondents reported growth which was up from 27% in February.

There was also a little bit of Fedspeak yesterday although nothing that particularly moved the dial. Fed Chair Yellen didn’t touch on either monetary policy or the economy. San Francisco Fed President Williams did however and said that three “or maybe even more” rate increases this year makes sense, but depends on how the data comes in.

Looking at the day ahead, this morning in Europe we’re kicking off in France where the final revisions to Q4 GDP will be made. Thereafter we will get the aforementioned flash PMI’s for the Euro area, Germany and France. This afternoon in the US the main focus is likely to be on the February flash durable and capital goods orders data where market expectations is for a +1.3% mom rise in headline durable goods orders and +0.5% mom rise in core capex orders. The flash PMI’s will also be out in the US this afternoon. Away from the data there is plenty of Fedspeak with the Fed’s Evans (12pm GMT), Bullard (1.05pm GMT), Dudley (2pm GMT) and Williams (5.30pm GMT) scattered throughout the day.  Of course the main focus will be on the healthcare bill developments.