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Before the Bell: Trump's failure sparks market sell-off

The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.

Stock markets have been teetering on the edge of a correction for weeks, and are falling Monday. U.S. index futures are down 0.8 per cent with th‎e Dow falling back under 20,500. The Nikkei fell 1.4 per cent overnight, while the FTSE and Dax are down about 0.75 per cent.

The post-election rally has been looking exhausted for a while now, but markets kept insisting on pricing U.S. president Donald Trump for perfection. The failure of the Republicans in the administration and Congress to come to an agreement among themselves on health care has become the tipping point, reminding the Street that politics isn't as simple as it sounds.

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Politics aren't like the markets, which adapt quickly to change. Political reform is a slow messy process where people rarely get everything that they want. Next up on the political agenda is tax reform with border taxes and trade likely to be the sticking point. ‎It remains to be seen if tax reform and health care will delay the infrastructure push off to next year.

Friday's failure has raised uncertainty about what can be done in the U.S. political process, causing traders to rethink and reprice U.S. political risk. In the markets, this can be seen in capital leaving stocks heading back into defensive havens. Gold and the Japanese yen, in particular, are up big to start the week with the yellow metal gaining 1.1 per cent.

Currencies across the pond are also strong today. The British pound is up a big figure against the U.S. dollar, blasting through $1.2500 decisively ahead of Wednesday's expected Article 50 trigger. The euro is up on a big win by German chancellor Angela Merkel's party in Saarland regional elections plus a better-than-expected IFO business survey report.

‎Canadian trading could be mixed today. While gold stocks could benefit from the gold rally, a 1.5-per-cent decline in copper and a 0.7-per-cent decline in WTI could impact base metal miners and energy producers. The banking sector, which worldwide had benefited from the Trump election trade, may be impacted by that big global sector play falling apart. The Canadian dollar has also been held back by commodity price weakness, unable to take advantage of the U.S. dollar retreat so far.

MARKET DATA:

Futures (as of about 9:30 a.m. ET)

Dow -0.71 per cent; S&P 500 -0.86 per cent; Nasdaq: -0.74 per cent; TSX 60 -0.24 per cent

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Equities
Japan's Nikkei -0.44 per cent
Shanghai composite index -0.08 per cent
Hong Kong's Hang Seng -0.68 per cent 
Germany's DAX -0.74 per cent
London's FTSE -0.69 per cent
France's CAC 40 -0.28 per cent

Commodities
WTI crude oil (Nymex April) -0.81 per cent at $47.58 (U.S.) a barrel
Gold (Comex April) +0.70 per cent at $1,257.30 (U.S.) an ounce
Copper (Comex May) -1.79 per cent at $2.585 (U.S.) a pound

Currencies
Canadian dollar +0.21 at 74.97 cents (U.S.)
U.S. dollar index -0.27 per cent at 99.11

Bonds
Canada 10-year bond yield +0.37 at 1.59 per cent

KEY ECONOMIC RELEASES

Euro Area M3 money supply
Germany Lfo business climate

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KEY STOCKS TO WATCH

Earnings include: Canacol Energy Ltd.;  Immunovaccine Inc.; Red Hat Inc.; Senvest Capital Inc.; Turquoise Hill Resources Ltd.

Also see: Monday's small-caps to watch

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The federal government has been scrambling to draft legislation to legalize the recreational use of marijuana, hoping to have a bill in place ahead of the symbolic date of April 20, sources said. A senior federal official said preparing the legislation has exposed a number of divisions on key issues between the Health, Justice and Public Safety departments, requiring federal lawyers to work overtime to find the appropriate legal language to express the government's final intentions. The government is hoping to legalize pot by July 1, 2018, CBC News reported Sunday night.

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Restaurant Brands International Inc. of Oakville, Ont., has received enough shares of Popeyes Louisiana Kitchen, Inc. to complete its $1.8-billion (U.S.) friendly takeover of the fast food chain. The parent of Tim Hortons and Burger King says that about 83 per cent of Popeyes common stock was tendered to the offer by the deadline, which expired at 11:59 p.m. on Friday.

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Dow Chemical and DuPont gained conditional EU antitrust approval on Monday for their $130-billion merger by agreeing to significant asset sales, one of a trio of mega mergers that will redraw the agrochemicals industry.  The European Commission had been concerned that the merger of two of the biggest and oldest U.S. chemical producers would have few incentives to produce new herbicides and pesticides in the future.

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Snap Inc. was up 4.7 per cent at $23.80 in premarket trading on Monday after multiple brokerages began coverage on the owner of Snapchat after the blackout period for its IPO underwriters ended.

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Amazon.com was off 0.96 per cent at $837.50 after Dubai's Emaar Malls made an $800-million offer for online retailer Souq.com. Amazon has agreed in principle to buy Souq, according to sources.

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With files from wire services

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