Stock markets were stable overnight with the initial shock of health care reform fading. Quickly ending a debate that was going in circles to move on to tax reform and maybe infrastructure spending helped to soften the blow. This also sends a message to Congress they can't drag on debate forever and leaves the door open to back channel negotiations that could end up being more fruitful. That being said, progress is going to need to be made on something before traders lose patience with the political process.
US index futures and the FTSE are up 0.1% while the Dax is up 0.6% and the Nikkei has gained 1.1% in a bigger bounce. Currencies are holding steady with gold, GBP, EUR and JPY holding on to recent gains. WTI crude is up 0.7% essentially clawing back yesderday's loss.
The US dollar index remains below 100.00 having taken the brunt of the selling pressure from the health care failure. Traders have recognized that the failure means that other initiatives could get watered down or delayed. Because of this, President Trump's fiscal efforts may not be as stimulative or inflationary as previously thought, easing the pressure on the Fed to raise interest rates.
The inability of Congress to reach a deal also raises the risk of a big showdown later this year over the budget and debt ceiling. This could force the Fed to skip a quarterly hike, likely September. Last night Chicago Fed President Evans indicated four hikes as unlikely based on how inflation is tracking and indicated he (speaking for the dovish faction at the Fed) favours two increases.
Today, a number of FOMC members are out speaking today with the most important being Chair Yellen, and Governor Powell, a permanent voter who doesn't speak publicly very often. They may shed more light on the Fed's monetary plans for this year.
Canada may also attract some attention from traders today with Bank of Canada Governor Poloz speaking. Earlier this year, Governor Poloz left the door open to an interest rate cut if Canada were to be impacted by US trade policy changes.
Since then, however, Canadian job growth has been spectacular, meetings between Canadian officials and their US counterparts have gone well and President Trump has made positive public statements about Canada. He approved Keystone XL last week ending eight years of delays and rejections under president Obama. Any change in tone from Governor Poloz could have a significant impact on trading in the Canadian dollar today.