As this week’s Commentary takes shape, US Republicans have not been able to reach a deal in order to pass President Trump’s revised Health bill to repeal Obamacare with the latest headlines noting that bill has been scrapped amid mounting opposition from Trump’s own party. This has prompted markets to increase their concerns about Trump’s ability to deliver on his election tax cuts and spending promises and as a result, the euphoria (rally) that we have seen in markets since the US election is starting to unwind. This was the first major attempt by the administration to reform the government and its miserable failure exposes the limits of President Trump’s negotiating skills as well as divisions within his own Party.
While the US dollar and equity markets are down, as are long term yields (probably a good thing), the impact of the failed congress vote was not as severe as was expected. The health care vote may have been cancelled but Trump (typically) has moved on quickly with the focus of the administration now moving to trying to legislate its tax reform program.
While the latest RBA Board minutes released last week confirmed that our rates are on hold for the foreseeable future, confirmed by futures pricing that currently has the cash rate at 1.52% in December, the US futures are pricing in a 58% chance of another US rate hike by June.