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Briefing highlights

  • Investors await key health care vote
  • Seen as test of Trump's plans
  • Loonie at about 75 cents
  • What analysts say about the budget

Watching and waiting

Global markets are tame but jittery so far as investors wait to see how President Donald Trump’s health care proposal plays out.

The debate in the House of Representatives is the first real test of the new president, and a test of the already fragile nature of the Trump rally across financial markets.

“Conventional wisdom is that President Trump hasn’t secured the votes necessary for passage of the bill, and the market take on that is that it exposes the Trump rally’s shaky foundations,” warned Kit Juckes of Société Générale.

Markets tumbled on Tuesday as fear spread that the U.S. administration's tax reform plan could be further delayed, though stocks were more stable on Wednesday. Which brings us to the House decision on health care.

Tokyo’s Nikkei gained 0.2 per cent, and the Shanghai composite 0.1 per cent, while Hong Kong’s Hang Seng was up marginally.

Major indexes rose across Europe, with London’s FTSE 100 the Paris CAC 40 and Germany’s DAX up by between 0.1 and 0.8 per cent.

North American stocks were up, and the Canadian dollar was sitting at about the 75-cent U.S. mark.

“Concerns remain about the ability of the new U.S. administration to deliver on its promises on tax and banking reform, as well as infrastructure spending in the time expected given the current disagreements surrounding health care reform,” said CMC Markets chief analyst Michael Hewson.

“If Trump is unable to deliver on his health care promises, where the majority of Republicans are broadly in agreement, it will inevitably beg the question as to how he can deliver on anything else, which means a defeat in today’s House vote could trigger further investor nervousness about deliverables.”

For now, U.S. markets are “holding their breath,” noted London Capital Group senior market analyst Ipek Ozkardeskaya.

“Any positive news from today’s vote has the potential to revive the stock bulls,” Ms. Ozkardeskaya said.

“Trump-favourable trading would also include a recovery in the U.S. yields, the U.S. dollar and the banking shares across the global markets,” she added.

Mr. Trump’s infrastructure and tax plans have been behind the rally, said IG market analyst Joshua Mahony.

“Trump has already said the tax cut cannot be announced until the healtch care bill is passed, and concerns are growing that if the bill is rejected, then the ability of Trump and his team to persuade Congress to pass further bills will be in doubt,” Mr. Mahony said.

“Markets are beginning to feel exposed following an incredible run which has been built on promises from a man who has been shown to play fast and loose with the facts.”

How markets ended Wednesday


The morning after

Here’s what market obsevers have to say about Finance Minister Bill Morneau’s Wednesday budget:

“With Canada’s economy sparking back to life in recent quarters, near-term deficit projections have eased off, but the targets for the debt-to-GDP ratio in the medium term only allowed for modest new elbow room for spending. With the economy showing no pressing need to add to fiscal stimulus in aggregate, the budget was more about reformulating some programs, and fleshing out the details in existing plans, including allocating some of the social infrastructure bucket to housing and child care.” Avery Shenfeld, CIBC World Markets

“As we have argued before, these types of fiscal targets are foolish. Policy makers should be more focused on achieving full employment with relative price stability, not obsessing over specific targets for budget deficits or debt ratios.” David Madani, Capital Economics

“There was little deviation from last year’s plan which also focused on the middle class. This budget turned the tables slightly and looked at gender-based fairness, especially related to tax changes. There were some minor gives and takes, but nothing that would move the needle on fiscal balances in a significant manner. In this instance, there wasn’t much the government could do in this regard as there are many policy unknowns. The government seems content to remain in deficit and keep debt levels stable.” Arlene Kish, IHS Markit Economics

“The relatively neutral fiscal policy is likely to have little impact on our economic outlook for Canada. We continue to believe that Canada’s growth should improve somewhat in 2017, as the drag on growth coming from business investment is likely to abate. However, many risks remain to the outlook, especially the impact of President Trump’s policies on Canada.” Charles St-Arnaud, Nomura

“Unchecked spending had prompted concerns within the federal government of revenue shortfalls seemingly missing the point that it is of their own doing. Thankfully no major tax increases were announced in today’s budget. However, this good fortune could be temporary as any disappointing surprises in the economic outlook could derail the government’s fiscal plan necessitating higher taxes to fill a deepening fiscal hole.” Craig Wright, Paul Ferley, Royal Bank of Canada

“In summary, the release of the budget will reduce most of retail investors’ anxiety that had built up in recent weeks although there is a willingness to make further changes to tax expenditure programs down the road. In comparison to last year’s tax relief to the middle-class and the announcement of the long-term massive infrastructure plan, this budget was very light in terms of new initiatives.” Sébastien Lavoie, Laurentian Bank Securities

“Ultimately, what the government delivered felt more like a fiscal update than a budget. Little was on offer in terms of new spending, while at the same time much of the concern around significant tax changes proved misplaced. This lack of excitement may not be a bad thing. The economic landscape remains shrouded by uncertainty, presenting a strong case for today’s wait and see approach.” Beata Caranci, Brian DePratto, Toronto-Dominion Bank

porter, kavcic “The issue for us is that the Canadian economy now appears to be growing above trend rates again, and is late in the business cycle - the recovery is now almost 8 years old! - and that’s exactly when building fiscal capacity is a wise strategy. Or, as your grandparent may have said: ‘Make hay when the sun shines.’” Douglas Porter, Robert Kavcic, BMO Nesbitt Burns

“Moreover, with an already low federal debt burden basically moving sideways in the near term and a bit lower in the out years of the plan, we don’t see a whole lot to make credit rating agencies or bond investors nervous. As such, we continue to anticipate solid demand for Canadian sovereign debt.” Warren Lovely, National Bank

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