Is the Trump trade finally over? General risk off overnight saw the DOW and S&P500 experience greater than 1.1% sell offs, with the Australian ASX200 selling off below the 5,700 level during this morning’s trading. The VIX rallied almost 10% and the US dollar index touched early February levels, breaking the 10,000 level.
Trump is predicting a victory this Thursday when Washington house of representatives decide on his proposed scrapping of Obamacare and the introduction of his amended healthcare plan.
Trump met with Republican lawmakers on Tuesday as the US equity market sharply fell. Dozens of republicans have promised to vote against the plans. Just 20 republicans will be required to vote against the changes for Trumps plans to be frozen.
“You have this back and forth in Congress with the new healthcare plan and you have this belief that if the healthcare plan can’t pass, then they can’t move on to taxes. There’s this feeling that if things don’t get done, then maybe what the market has been anticipating gets held up,” said Mark Kepner, managing director at Themis Trading in Chatham, New Jersey.
EUR/USD and GBP/USD longs will benefit from US dollar and equity market weakness, not to mention last night’s strong UK inflation figure. UK CPI y/y smashed expectations, hitting 2.3% – the highest inflation rate since October 2013. This tops the BOE’s 2% inflation target. This sharp increase in inflation is the result of the weak sterling, which has dropped 17% since the Brexit announcement. Traders are advised to keep an eye out for UK rate rise talks over coming months.
Eurozone investors are also betting on ECB rate rises before QE ends – signalling a strength rally in the EUR/USD pair, supported by recent developments in the Netherlands and Marine Le Pen falling out of favour with French voters. Expectations that the ECB will adopt a less accommodative policy stance have been building up in the market following improvement in recent euro-area economic data, including PMI’s hovering near six-year highs.
Fed Chair Janet Yellen also speaks tomorrow night (11:45PM AEDT), traders will be keen to hear if she reiterates her recent dovish tone from the last FOMC meeting. Should Yellen’s tone be dovish and Washington struggle to agree, market volatility should pick up and provide trading opportunities across all asset classes.
