Dow's losing streak: what the experts say
Financial experts are split over whether Trump can move past the healthcare headache and deliver tax reforms.
Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma, says:
“The market is still cautiously optimistic that the Trump White House will be able to push through many of their pro-business policies, and I think a lot of people are hopeful the Trump rally can continue through at least the middle of the year.”
Chris Weston of IG also reckons the markets could keep rallying, despite political worries:
It is a stretch to believe anyone has really bought into the idea that the Trump administration can really deliver on far-reaching tax reform. But what we can see, is that to a large extent it isn’t going to worry them too much either.
This is a Teflon market where literally nothing sticks. This seems unfortunate, as volatility provides opportunity.
But Bruno Braizinha, interest rates strategist at Societe Generale in New York, is more cautious, arguing that:
“The recent hiccup on the policy front casts serious doubt on the administration’s ability to push forward its ambitious policy agenda.”
And on that note, we’re wrapping up for the day. Thanks for reading and commenting. GW
Updated
Adam Gaffney, instructor in medicine at Harvard Medical School, has welcomed the Republican’s failure to push through their replacement for Obamacare.
He writes:
First, it is tantamount to a societal rejection of the conservative healthcare ethos. Second, it may very well open the door to more progressive, fundamental healthcare change in the years to come.
Would-be Trumpcare had three main pillars: continue the Affordable Care Act’s (ACA) subsidization of private health plans (though recalibrated along highly regressive lines), shrink Medicaid by about 25% over a decade, and provide lavish tax breaks to the rich.
It was thus the evil cousin of Obamacare: it would have benefited the well-off at the expense of the working class and sick, it is true, yet it would also have conserved Obamacare’s overall organization, and left many of its insurance regulations intact.
This last fact played a major role in the bill’s fate, for it alienated hard-right true believers in the “House Freedom Caucus”. Conservatives contended that it would only be by eliminating Obamacare’s various insurance regulations – including the one that requires that plans cover “essential health benefits“ like hospitalizations, maternity care and medicines – that premiums would fall.
Here’s his full take on the now-scuppered American Health Care Act.
Today’s losses have pushed the Dow Jones industrial average to its lowest close since Valentine’s Day, on 14th February.
So, its lowest point in almost six week - but still much higher than before last November’s presidential election, and the start of the Trump Bounce.
Dow closed lower for the 8th day, longest losing streak since 2011 as investors recalibrating pol expectations on timing & scope of tax bill pic.twitter.com/2sMsndax5p
— Holger Zschaepitz (@Schuldensuehner) March 27, 2017
Why did Wall Street claw its way back from this morning’s lows?
One theory is that investors are deducing that Donald Trump will now push on with tax reforms.
Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, says (via Reuters):
“Tax legislation done right and done quickly is a big stimulant to earnings and the market.
“The idea that tax legislation will come much quicker than it would have if the healthcare legislation passed is positive, and I think people are grasping onto that as a reason to hang on and buy more.”
Kate Warne, investment strategist at Edward Jones, believes investors are trying to work out the full implications of the healthcare situation.
She says (via CNBC):
This is coming as investors reassess how bad the news on health care actually is.
There are definitely mixed views on that. This could be a catalyst for Republicans to do a better job with tax reform.”
Dow posts 8-day slide, longest since 2011, as Street weighs tax reform prospects https://t.co/n2iCAyjvxM pic.twitter.com/O5x1B9TRtK
— CNBC Now (@CNBCnow) March 27, 2017
Financial stocks ended the day down, as did industrial and energy firms.
That’s a sign that the Trump trade (betting on faster growth and higher inflation) has faded today.
Technology, healthcare and consumer goods makers dominated the risers:
Dow records 8th daily decline
Boom! The Dow Jones industrial average has fallen for the eighth day running, its worst losing streak since 2011.
But.... it’s a more muted selloff than earlier today, as traders digest the Republican’s bloody nose over healthcare reform, and its implications for Donald Trump’s administration.
- The Dow has closed down 46 points, or 0.22%, at 20,550 points.
- The S&P 500 lost around 0.1%
- The Nasdaq gained around 0.2%
The dollar has also come back a little, but has still lost much of its gains since November.
Here’s a couple of photos from Wall Street today:
Traders Fred Demarco, left, and Tommy Kalikas work on the floor of the New York Stock Exchange. Banks and industrial companies lead stocks lower on Wall Street in early trading. Photograph: Richard Drew/AP
After a rough start, the US stock market is staging a little recovery in late trading.
The S&P 500 index (a broader measure of the markets than the Dow) has now erased its losses, having been down almost 1% in morning trading.
It’s not all doom and gloom in the markets.
Jasper Lawler, analyst at London Capital Group, suggests that the Republican’s failure to replace Obamacare could spur the president on:
The negative reaction to Trump’s healthcare setback makes sense but there could be some silver-linings to be gleamed once the dust settles. Trump the dealmaker President will want a success to offset this failure.
With its wings clipped from failed healthcare reform, the White House may pursue tax reform that is more likely to survive the rigor of Congress.
Today’s selloff wiped almost £11bn off the companies who make up the FTSE 100 index.
That sounds like a lot. After all....
“A billion here, a billion there, pretty soon, you’re talking real money.”
But it’s really not much in market terms, and still leaves the FTSE 100 worth around £96bn more than on November 9th.
#FTSE100 closes down 45 points at 7294 after markets move lower on Trump concerns. Capital at risk #business #mondaymotivation #fintech
— The TJM Partnership (@TJMPartners) March 27, 2017
Charles Gasparino of Fox News points out that the market rally began to fade after Trump’s first State Of The Nation address on February 28th.
since the state of the union, Dow has lost nearly 600 pts amid irrational presidential tweeting & health care debacle more now @FoxBusiness
— Charles Gasparino (@CGasparino) March 27, 2017
Donald Trump doesn’t seem to have made the dollar great again - the US currency is now a little weaker than on November 8th.
U.S. dollar real effective exchange rate is now below where it closed the day after the presidential election, according to JPMorgan
— Matthew B (@boes_) March 27, 2017
Capital Economics: Trump could still achieve tax reforms
Capital Economics have put out an interesting research note, arguing that the debacle over healthcare reform needn’t scupper a tax reform plan.
But only if - and it’s a Big If - Donald Trump can build a consensus within Congress for his plans.
Paul Ashworth, their chief US economist, says:
The health care bill fiasco doesn’t necessarily alter our view on the prospect for tax cuts. We had already pushed back our forecast of both the potential size of any fiscal stimulus and its timing, so the latest bout of Republican infighting hasn’t changed our thinking that we will eventually see a modest $2trn package of tax cuts enacted by early next year. Even complete legislative gridlock wouldn’t necessarily be a disaster, however, particularly not when there is evidence of a very strong pick-up in global economic growth.
Ashworth points out that George W Bush managed to get his tax reform plan through the House and the Senate - with 10 Democrats jumping the fence to support him.
However....
The contrasts between 2001 and now are stark. First, the Trump administration doesn’t have a detailed tax plan of its own and frankly, at this stage, it’s questionable whether it has the expertise to craft its own bill. As with health care, it is more likely that the administration’s role will be restricted to piggybacking on a plan proposed by the leadership in either the House or the Senate....
Second, there is almost no chance of any Democrats breaking ranks and supporting a bipartisan tax reform bill this year. It simply doesn’t make electoral sense for them to hand Trump any sort of win, not with the 2018 mid-terms now on the horizon.
European markets close
Despite a late recovery, Europe’s stock markets have ended the day in the red.
Worries over the US political situation weighed on shares, although it’s more of a dip than a full-blown correction.
In London, the FTSE 100 has finished down 43 points at 7293 points, down 0.6%.
Mining stocks were the biggest fallers, with copper producer Antofagasta losing 4.6% and iron ore-to-coal trader Glencore down 4.3%. That’s a sign that the ‘reflation trade’, driven by Trump’s promises of tax cuts and more spending, is fading.
Across the channel, France’s CAC ended the day almost flat. But Germany’s DAX shed 0.6%, and the Amsterdam AEX closed down 0.4%.
America’s market is also coming back from its lows, but still on track for its worst run of losses since 2011.....
Bit of a turnaround day so far - Dow rallies +100 off the opening low, still -70 from Friday's close. https://t.co/YWxDCfWWLg
— David Jones (@JonesTheMarkets) March 27, 2017
Connor Campbell of SpreadEx has spotted that the Dax hit a six-week low earlier today, its lowest point since 14th February, when traders were snapping up red roses and chocolates.
Dropping around 170 points after the bell the Dow is now trading at its lowest price since Valentine’s Day, investors’ love affair with the belligerent blowhard who currently sits in the White House seemingly at an end.
Updated
Michael Hewson of CMC Markets says the markets have ‘caught a cold’ from the Republican’s failure to win enough support for their healthcare reforms - despite enjoying a majority on Capitol Hill.
Having overseen a strong rally in stock markets over the past few months the new US president is learning a hard lesson in the differences between campaign promises and the ability to deliver them in a difficult political environment.
President Trump is learning the hard way that there are big differences in promising the earth and then being able to deliver it.
For all his optimism that he can park his health care reforms and come back to them later, while moving on to tax reform, and or infrastructure spending, there is rising scepticism amongst investors that he will fare much better on this score either.
This is no better reflected in the decline in the US dollar, as well as bond yields as markets start to price out the imminent prospect of a large scale fiscal stimulus plan.
Gold has now recovered almost all its losses since November, as traders dash back into ‘safe-haven assets’.
Dollar and Gold close to reversing all of their post-election moves. $UUP $GLD pic.twitter.com/i3yAk5KMwc
— Charlie Bilello (@charliebilello) March 27, 2017
Dollar index at lowest since November
The dollar has now fallen to its lowest level since mid-November, when measured against a basket of leading currencies.
In other words, nearly all the gains since Donald Trump’s election triumph have now been wiped out.
Citi: Dollar shattered right as everyone heads for the exits after a 5m party. DXY at lowest since Nov, close to erasing #Trumpflation gains pic.twitter.com/pMLleneGHl
— Holger Zschaepitz (@Schuldensuehner) March 27, 2017
Banks are leading the fallers on Wall Street, with nearly every share on the Dow Jones in the red.
Goldman Sachs is leading the decline, down 3%, followed by other financial stocks including JP Morgan, American Express and Visa.
Wall Street opens in the red as Trump trade falters
Ding ding goes the Wall Street opening bell.....and down goes the stocks!
The Dow Jones industrial average has tumbled by 168 points, or 0.8%, to 20,428 points - putting it on track for its eighth decline in a row.
The S&P 500 has suffered a similar decline, and the technology-focused Nasdaq has lost 1%.
It’s bad news for anyone who has been following the Trump Trade; betting on a strong dollar, buying shares and selling government bonds.
As in Europe, US traders are showing anxiety over Donald Trump’s ability to get legislation through, following the failure to get the Affordable Health Care Act voted through on Friday.
Neil Wilson of ETX Capital says the failure of the Republican’s health reform bill is driving a “flight to safety” (and out of stocks) today.
While the bill itself was to have a pretty minor effect on equity prices, Trump’s failure has spooked markets. There are now doubts about whether he can get the much more market-sensitive tax and spend legislation through (whatever that is – we still don’t know what it will look like). All this casts a pall over the president’s ability to get any meaningful reform on the move. Same old Washington gridlock, you might say.
No pressure....
If the Dow finishes down today, will be the longest losing streak (days) in 5.5 years. Via @MarketsContext pic.twitter.com/UaFAApgzOI
— David Jones (@JonesTheMarkets) March 27, 2017
Lena Komileva of G+ Economics makes an important point -- European financial assets are looking more attractive, as investors fret about the Trump presidency.
She writes:
It is clear that market risk premia are no longer coloured by relative monetary policy alone, but also by a new regime of international political risk dominance.
The contrast between market expectations of an EU-friendly outcome at the upcoming French elections, after Chancellor Merkel’s CDU better-than-expected polling at Germany’s local elections at the weekend, versus President Trump’s failed healthcare vote in Congress and increased US military engagement in Syria, has resulted in markets demanding a higher “safety” premium in US assets (stocks, bond yields and the dollar) versus Europe, notwithstanding the US’s growth, inflation and policy rate differential.
A new four-month high for the euro!
#Euro just jumps above $1.09, highest since Nov. pic.twitter.com/JM5lkXQU1x
— Holger Zschaepitz (@Schuldensuehner) March 27, 2017
Dow could suffer worst run since 2011
Unless spirits pick up in New York, the market could record its longest losing streak in over five years.
The Dow Jones industrial average has already fallen for seven days’s running -- an eighth loss would be the worst run since longest losing streak since 2011.
Stocks fell globally Mon., putting DJIA on track for longest losing streak since 2011 amid doubts about Trump admin. https://t.co/yemA2zWHcG
— Daisy Maxey (@DaisyMaxey) March 27, 2017
Oof! The US dollar has just hit a four-month low against the Japanese yen, at ¥110.09.
With one hour to go until the open, Wall Street is still heading for fresh losses as the Trump trade (buy shares and the US dollar, and sell bonds) unwinds.
As this chart shows, the UK and German markets are also in the red:
Euro hits highest level since November.
Trump’s legislative headaches, and signs that the European economy is picking up, have swept the euro to its highest level in four and a half months.
The euro just hit $1.0879, a gain of 0.8%, and the highest since the week of the US election.
It came after European Central Bank board member Sabine Lautenschläger said the markets should get ready for “a change” in ECB policy.
That’s being taken as a hint that the ECB could soon slow its quantitative easing (bond-buying) programme.
#ECB'S LAUTENSCHLAEGER SAYS SHOULD PREPARE FOR A CHANGE IN ECB POLICY - RTRS
— Christophe Barraud (@C_Barraud) March 27, 2017
Lautenschläger was speaking at the ECB’s annual press conference on banking supervision, alongside Danièle Nouy, who chairs its supervisory board.
Nouy: Banking is not only about stability, but also about profitability. Banks need to embrace change and adjust business models.
— ECB (@ecb) March 27, 2017
Nouy: We need consolidation of the banking system. Of course we need to take into account the too big to fail issue.
— ECB (@ecb) March 27, 2017
Lautenschläger: It is not our job to decide about the structure of the banking system. But banks' business models need to be viable.
— ECB (@ecb) March 27, 2017
Why the Trump bounce didn't last
The world’s stock markets have been on quite a rally since Trump beat Hillary Clinton to the White House.
The Dow Jones, for example, surged by 15% between November and the start of March.
But...it has been dropping back in the last few weeks as investors watched the new president wrestle with the levers of power.
Yesterday, The Observer argued there are three reasons why the Trump rally is fading:
The first is that it may be some time before Trump gets agreement for tax cuts and infrastructure spending. It could easily be delayed until 2018.
The second is that the president’s ambitions may well have to be scaled down. Trump wants to use the savings from replacing Obamacare with something cheaper to fund his fiscal boost, but the Congressional Budget Office said last week that the impact on the budget deficit would be substantially less than originally estimated: a reduction of $150bn (£120bn), rather than $336bn. Fiscal conservatives in Congress will probably demand that Trump finds savings elsewhere.
Finally, corporate profits are set to be squeezed by a combination of rising wages, higher interest rates and a stronger dollar. Trump’s fiscal package – assuming it is approved – would reinforce those pressures, because stronger growth would lead to greater demand for labour.
Updated
Pound hits eight-week high
Sterling has now hit its highest level since 2nd February, as the US healthcare reform debacle continues to drive the markets.
One pound is now worth $1.2590, as investors back the UK currency despite the imminent triggering of Article 50 (inked in for Wednesday).
Mihir Kapadia, CEO and Founder of Sun Global Investments, says investors haev renewed doubts over Trump’s ability to get changes through Capitol Hill.
“The setback with the healthcare bill was not just the failure by the Republicans to vote for the repeal of Obamacare, but the fact that Trump has failed to get a measure even though the Republicans control the House and the Senate, raising some doubts about his capacity to get his programmes passed into law.
Markets had assumed that a radical economic agenda could be passed considering the political dominance of the Republicans.”
Updated
Elsewhere in the markets, South Africa’s rand has taken a sudden hit following reports that the country’s finance chief has been recalled from a foreign trip.
Prime minister Jacob Zuma ordered finance minister Pravin Gordhan back from an investor roadshow earlier today, newswires say, sparking speculation that a cabinet reshuffle is imminent.
One government source told Reuters that Gordhan didn’t have permission for the trip, to drum up international interest in buying South African debt. But other reports suggest that Gordhan did have a permission slip, but it’s been revoked...
Either way, it means the rand (ZAR) is having an even worse day than the US dollar:
ZAR weakness the standout today on reports that FinMin Gordhan has been told to return home from an international roadshow pic.twitter.com/9NvOvtVUPP
— Divyang Shah (@DShahTR) March 27, 2017
Updated
Wall Street is expected to suffer losses when the market opens in four hours time.
The futures markets indicates that the Dow Jones industrial average could shed over 0.6%, or 140 points, at the open:
Dow futures off 140 points. https://t.co/dhmbBgMZhG pic.twitter.com/IRgjqb9k4b
— Joe Weisenthal (@TheStalwart) March 27, 2017
World stock markets could keep falling in the weeks ahead, if Donald Trump fails to deliver on his ambitious promises to boost government spending and cut taxes.
Kathleen Brooks of City Index says the healthcare bill was a ‘major litmus test’ for Trump. So, Republican’s failure to get enough support for the legislation suggests Trump’s “aggressive policy agenda” may struggle.
Brooks says:
Not only does the failed healthcare bill highlight the challenges Trump may face trying to get his other policies passed, but the Congressional Budget Office also highlighted that the savings expected from Trump’s healthcare bill would be much less than expected, which could limit the size and scope of his infrastructure spending plan. This is significant for the markets, as the “Trumpflation“ trade was based on fiscal spending, if there is less money in the pot, then stocks might have to unwind some of their gains since Trump won the election last November.
If that happens, then banks and healthcare providers could be hit particularly hard...
The Trump “disappointment trade” is now in full swing. The biggest losers on the Dow Jones last week were Goldman Sachs, Du Pont, Pfizer and Boeing, all companies that were reliant on Trump’s policy agenda. We expect losses from banking stocks, materials and construction firms, and healthcare companies in the next few days as the markets adjust to this set back for Trump. How he reacts will be crucial, so we will watch his Twitter account with a close eye. A spat with Congress is likely to keep the markets on edge, weigh on stock markets globally and push up volatility.
German business morale hits 68-month high
Just in: German business morale has hit its highest level since July 2011 - defying the market gloom this morning.
That’s according to the latest survey from the IFO thinktank. Its ‘business climate’ survey has smashed forecasts, jumping to 112.3 this month, from 111.1 in February.
Manufacturing, retailing and construction firms all reported that conditions were better than a month ago, suggesting worries of protectionism and trade wars are receding.
German IFO Business Climate comes in at 112.3 exp: 111.1
— Michael Hewson (@mhewson_CMC) March 27, 2017
Strong ifo, better days for #capex spending #Germany pic.twitter.com/sI1D7NuDE1
— Holger Sandte (@HolgerSandte) March 27, 2017
Money is pouring out of shares and into safe-haven government bonds.
That is driving down the yield (or interest rates) on sovereign debt, as investors accept a lower rate of return in exchange for safety.
Global govt bonds continue to rally in a risk-off trade. 10y US yields drop to 2.35%, lowest since Feb as investors prepare for a rough week pic.twitter.com/kJkUKZGL0C
— Holger Zschaepitz (@Schuldensuehner) March 27, 2017
Kit Juckes of Societe Generale says:
Failure to pass the Healthcare Bill doesn’t mean that President Trump’s entire agenda is in tatters but it’s a huge setback all the same and the market mood reflects as much. Bond yields, the dollar, commodity prices and equities are all weaker.
Trump's healthcare failure sends traders 'running for the hills'
Naeem Aslam of Think Markets has a good take on the market selloff this morning, and why traders are suddenly more worried about Donald Trump:
We often hear the term, “the good, the bad, and the ugly.” However, the markets are only receiving two of those choices today and neither one is good, as investors swallow the bad pill that is Trump’s failed health care plan. In other words, it is a perfect textbook trade where if the result is not in accordance with the market’s expectations, the markets will drop like a rock. Donald Trump faced yet another setback on Friday when he pulled the healthcare bill from the House, as it was pretty much established that Obamacare is still more popular than any of his proposed plans.
The reason for the panic which is triggering market’s selloff, which is actually across the board, is it’s intensity, especially in those sectors which we mentioned a few ago in our special report. Investors are anxious to see if the big infrastructure and tax reform bills will have any shot of making it in the House and if Congress is going to give them their blessing rather than tough time. It is this in particular which is prompting the panic in the market and has everyone running for the hills.
The drop in the US dollar has helped to drive the gold price to a one-month high this morning.
Bullion has hit $1.257 per ounce for the first time since 27 February.
Jiang Shu, chief analyst at Shandong Gold Group, explains (via Reuters):
“Looks like some people are not happy with Trump’s failure over his promises and we see that currently there is a very bearish mood about the U.S. dollar.”
A wave of early selling has pushed all the main European stock markets into the red this morning:
Mike van Dulken of Accendo Markets says the 11th hour withdrawal of the US Healthcare bill on Friday night is putting the “four-month global Trump trade rally into question”.
Splat. Britain’s FTSE 100 index of leading shares has fallen by almost 1% at the start of trading.
The Footsie has shed 64 points at the open, or 0.9%, to hit 7272 - its lowest point in almost a month.
FXTM chief market Strategist Hussein Sayed says traders are reacting to the Republican’s fumbled attempt to replace Obamacare.
The lesson learned last week is that a Congress controlled by the Republicans doesn’t necessarily mean the President will be able to pass laws or his negotiation may work in business deals.
Unfortunately for him, it seems politics is going to be a different type of game that requires a different form of art.
Updated
Pound hits one-month high as dollar wobbles
The pound has hit a one-month high against the US dollar this morning.
Trump’s healthcare woes are dominating traders’ attention this morning, letting them take their minds off Brexit.
Sterling has gained 0.6% to $1.255, its highest level since late February.
The dollar is also losing ground against other currencies, as the greenback is undermined by the stunning news that Republicans couldn’t find enough support for their own healthcare bill.
Dollar Index DXY plunges as Trump trade took a big hit after US Health-Care flop. Dollar is close to erasing post-Trump rally. pic.twitter.com/EHHLd3neiU
— Holger Zschaepitz (@Schuldensuehner) March 27, 2017
Good morning Europe. Here you go:
— David Ingles (@DavidInglesTV) March 27, 2017
Euro shoots through $1.0850
GBP at $1.2545
USD Index at 99.14
USD-JPY 110.20
US 10Y yield down to 2.35% pic.twitter.com/UCevYYmG1C
The agenda: Is the Trump trade ailing?
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
World stock markets are starting the new week on the back foot, after Donald Trump’s attempts to shake up America’s healthcare system faltered.
Investors across the globe are disconcerted by the Republican party’s failure to get enough support for its proposal to repeal and replace Obamacare.
A crucial vote on the American Health Care Act (AHCA) was dramatically postpone on Friday night, after it became clear that it didn’t have enough support from Republicans.
That has left Trump lashing out at his own side, as well as Democrats, and forced financial traders to reconsider the president’s ability to force through other policies -- such as his pledge of tax cuts and infrastructure spending.
Markets are “rattled” by the thought that Trump doesn’t have the political capital for a deficit-funded tax cuts, says Ben Gutteridge, head of fund research at Brewin Dolphin, on Bloomberg TV a moment ago.
Shares have already suffered in Asia, where Japan’s Nikkei has fallen by 1.5% and Hong Kong’s Hang Sent has lost 0.75%.
Safe-haven assets such as the Japanese yen, and precious metals, are in demand, as the US dollar takes a hit.
The ‘Trump Trade’ -- bets on a strong US economic recovery and higher inflation -- are under pressure.
And European and US stock markets are expected to follow suit today, adding to last Friday’s selloff (when the wheels started to come off AHCA).
Our European opening calls:$FTSE 7286 down 51
— IGSquawk (@IGSquawk) March 27, 2017
$DAX 12007 down 57
$CAC 4991 down 30$IBEX 10260 down 49$MIB 20081 down 107
S&P futures are below the lows on Friday when it first started to look like the bill was doomed. https://t.co/dhmbBgMZhG pic.twitter.com/51U91lhbhd
— Joe Weisenthal (@TheStalwart) March 26, 2017
Also coming up today:
We get a new healthcheck on the German economy at 9am, when the latest IFO business confidence survey is released.
The European Central Bank is holding its annual press conference on banking supervision
In the UK, telecoms group BT has just been fined £42m for failing to give its rivals fair access to its network, and for not fairly compensating them for delays:
Updated
