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Trader thoughts - The long and short of it

Trump says ‘we have a chance on healthcare’, and that the vote is going to be ‘very close’. Perhaps that is not the opinion of the Freedom Caucus Chairman Mark Meadows, who is detailing that Republicans don’t have enough votes, but encouragingly is committed to ‘getting it done’.

US Flag
Source: Bloomberg

As is the case with politics of late, there is always a twist and we now see that the vote will be delayed until tomorrow. To be fair, there have been so many headlines that it doesn’t seem anyone really knows what is going on. However, House Republicans are expected to hold a closed-door meeting on the Bill starting at 10.00am AEDT tomorrow. I am sure that this will change, either way, it’s an event risk for traders in so much that we could see stocks, FX and futures gap on Monday.

Whether this delay buys the President some much needed time to get a few more undecided voters over the line and perhaps sway some of the ‘no’s’ is up for debate. However, the tally so far suggests it’s going to be very close, although certainly favouring a ‘no’ vote. The market is having its own vote and they are expressing a view that the ‘no’ vote gets up, especially on the headlines that the delay in the vote is premised on ‘amid doubts it can pass’.

The interesting aspect here is that after a positive open, we have seen that the bears have a greater say here, with the S&P 500 really being offered from mid-way through its session. We currently have the Dow and S&P 500 just in negative territory. US banks, which were doing nicely, have found sellers easy to come by and traders will be concerned about holding these into any vote that takes place when the equity market is closed.

The other event risk is that Asia based traders need to be aware of is the ‘technical committee’ weekend meeting in Kuwait. This should give further colour around the adherence of the agreed output cuts. Oil has dropped 0.7% on the session and holds gaping risk on the futures open at 9.00am AEDT, depending on what we hear.

The relations between Organisation of the Petroleum Exporting Countries (OPEC) and the 11 other nations involved in the 30 November agreement is a fascinating viewing at present. Here, the Saudi’s are giving strong hints that they are prepared to roll over the output cut for another six months, with the key focus being on pushing inventory levels towards their five-year average range. However, they are cognisant of the Iraq announcing plans to lift production to 5 million barrels by the end of the year, a nice lift from the agreed cap of 4.35 million. The Russian have also expressed a view of lifting output too, while the Saudi oil minister is facing growing pressure domestically on the view that the Saudi’s are doing more than their share of the heavy lifting.

One to watch, but any clear signs of strained relations between those nations involved in the 30 November agreement suggests that we will not see a new agreement at the 25 May OPEC meeting. This will not be taken well by oil traders.

It all promises to be a fairly interesting open in Asia and although we are calling for the ASX 200 to open moderately positively at 5718, SPI futures have come off the earlier high of 5726 and currently sit at 5712. Both BHP and CBA's ADR (American Depository Receipt) are largely unchanged, but some support will be seen in the materials space given copper is up 0.9%, spot iron ore is +1.6%, while steel futures have gained 1.2%.

Let’s not forget that we also have US (February) durable goods orders (consensus is for a gain of 1.3%), while New York Fed President Bill Dudley speaks at 1.00 AEDT. Both of these events look likely to be overshadowed by US political events, but they also pose a risk especially for FX and bond traders. Keep an eye on AUD/USD, which has had the biggest fall in the G10 block overnight (-0.7% on the session) and is sitting closer to the session lows of $0.7622.

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