After all of last week saga, the US has no phenomenal health care plan as Republicans tell Trump that it ain’t going to happen. House Speaker Ryan pulls the Republican Health Care Bill from the House minutes before a planned vote amid mounting opposition from his own party. This was the first major attempt by the administration to reform the government and its miserable failure exposes the limits of President Trump’s negotiating skills as well as divisions within his own Party. US political focus now shifts towards tax reform, arguably a more important legislative piece for markets.

US equities started the day on a positive note, but as it became evident that the Health Care bill was unlikely to pass, equities turned south with a small recovery in the last trading hour easing some of the losses. The S&P500 closed down 0.08% and the Dow -0.28% while the NASDAQ buck the trend closing the week up 0.2%. The S&P500 lost 1.4% on the week, its biggest weekly loss since November 4, the week before the US election.

After starting the day on a solid footing the USD (BBDXY) lost ground through out the day following the move lower in US equities. The index recovered a bit of ground in the last hour of trading, but still ended the day down 0.08% and the week -0.63%. European currencies were the performers against the USD as preliminary PMI readings for March beat expectations (SEK was 0.24%, CHF 0.20% and EUR 0.14%).  EUR spent most of the US session above the 1.08 mark, but it succumbed in the last hour of trading to close the week at 1.0798.The AUD and NZD essentially treaded water for most of Friday night and ended the NY session little changed from Sydney’s closing levels. AUD closed the week at 0.7623 and NZD at 0.7028. GBP underperformed on the day (-0.38%), but it still managed to end the week 0.7% higher against the USD.

10y UST yields drifted from 2.43% to 2.39% as the Health Care bill prospects diminished during the day, but the small recovery in equities at the end of the session lifted yields helping 10y UST end the week at 2.41%. The 2y10y UST curve flattened 1.2bps to 115.5bps and the 5y30y curve flattened 1bps to 106.8bps. So in general there has been no change to the curve-flattening theme established from around the FOMC meeting in mid March.

As for commodities, it was again another session of mixed outcomes.  Oil prices ended the week stronger, up between 0.5% and 0.6%, gold continued its ascendency up another 0.1%, but iron ore lost 1.5% to end the week at $85.1. Copper was down 0.4% following news that the world largest copper mine, BHP Billiton’s Escondida in Chile, have ended a lengthy strike. Many analysts expect the metal to come under pressure now the dispute has been effectively postponed for another 18 months.

Core logic weekend market update reported another solid week of auctions across capital cities with the number of auctions held surging to the second highest weekly level over the year to date.

CFTC data from the week ending March 21 shows USD speculative longs against G10 currencies rose by 29.2k to 198.5k with the CAD showing the biggest move 21k longs turned into 24k shorts. Meanwhile in rates 2y, 5y and 10y shorts were reduced by 5k, 41k and 94k respectively.

The Euro area manufacturing PMI rose to 56.2 in March from 55.4 in February while the services reading climbed to 56.5 from 55.5. Both are at the highest in 71 months and suggest the broadening recovery in the euro area is still very buoyant supporting prospects of faster job creation and stronger inflationary pressures. Germany and France manufacturing and services PMIs also had a solid outcome.

Fed Dudley said that Fed hikes are aimed at achieving a soft landing and the U.S. economy will cope “just fine” with a gradual policy tightening approach. In contrast, Fed Bullard said “It’s not necessary to raise rates that quickly if the goal is to keep inflation near target and keep unemployment between 4.5 and 5%”.

Coming Up

Markets are likely to start the week in a cautious mode amid lack of direction from the US. A shift in focus by the Trump’s administration towards Tax reform will no doubt fill a lot of headlines at the start of the week, however as the week progresses focus is likelyrodrigo to shift towards Europe with the UK set to enact the official Brexit process on Wednesday while a European response is expected within 48 hours thereafter.

China PMIs and US PCE deflators are the data highlights and there are a few Fed speakers on the roster. See our what to watch publications for more details

Overnight

On global stock markets, the S&P 500 was -0.08%. Bond markets saw US 10-years -0.71bp to 2.41%. In commodities, Brent crude oil +0.47% to $50.8, gold+0.1% to $1,249, iron ore -1.5% to $85.06, steam coal +0.0% to $80.95, met.coal +0.0% to $156.75. AUD is at 0.7619 and the range since Friday 5pm Sydney time is 0.7604 to 0.7641.

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• Markets Today: 27 March 2017 (PDF, 612kb)

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