Stock markets have been teetering on the edge of a correction for weeks, and today are falling off the side of a cliff. US index futures are down 0.8% with the Dow falling back under 20,500. The Nikkei fell 1.4% overnight while the FTSE and Dax are down about 0.75%.
The post-election rally has been looking exhausted for a while now but markets kept insisting on pricing President 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.
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 US political process, causing traders to rethink and reprice US political risk. In the markets, this can be seen in capital leaving stocks heading back into defensive havens. Gold and JPY in particular are up big to start the week with the yellow metal gaining 1.1%.
Currencies across the pond are also strong today. GBP is up a big figure against USD blasting through $1.2500 decisively ahead of Wednesday's expected Article 50 trigger. EUR is up on a big decisive win by Chancellor 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% in copper and a 0.7% 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. CAD has also been held back by commodity price weakness unable to take advantage of the US dollar retreat so far.