Asia Shares Muted, Dollar Hangs On For US Healthcare Vote

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Sydney: The dollar was living on borrowed time on Friday after U.S. lawmakers delayed a vote on a healthcare bill seen as crucial to President Donald Trump’s policy credibility.

Asian share markets were in limbo as a vote on the American Health Care Act might not happen until later Friday or Monday, as it meets opposition from warring factions within the Republicans themselves.

Some in the markets suspect a failure to pass such a high-stakes bill could endanger Trump’s promises of tax cuts and stimulus so beloved by Wall Street and U.S. corporates.

“The Trump reflation trade – particularly the equity leg of it, which has seen U.S. equity indexes roar to record highs – has arguably been long on optimism and short on substance for some time now,” said analysts at ANZ in a note.

“It comes at a sensitive time for the market, with the initial post-election exuberance having waned and as it weighs up political uncertainty, a strong U.S. economy and an increasingly hawkish Federal Reserve.”

Adding to the unease was a Reuters report that the Trump administration is preparing new executive orders to re-examine all 14 U.S. free trade agreements, including those in Asia, to aid American companies.

All of this kept stock markets muted. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent, while South Korea barely moved.

Japan’s Nikkei added 0.3 percent. A Reuters poll published on Friday showed confidence among Japanese manufacturers rose for a seventh straight month to a three-year high.

After falling sharply mid-week, Wall Street had lapsed into waiting mode on Thursday with the Dow down 0.02 percent. The S&P 500 lost 0.11 percent and the Nasdaq 0.07 percent.

DOLLAR STRUGGLES

As stocks stalled, bonds rallied. Two-year Treasury yields have fallen 15 basis points in the past week or so to stand at 1.256 percent.

At the same time, German yields have risen on speculation the European Central Bank might begin the long process of rate normalisation this year. The central bank issued an upbeat outlook on the Euro zone economy overnight.

The net result was a contraction in the dollar’s yield advantage over the euro, which has seen the single currency steady at $1.0777 after scoring a six-week top of $1.0828 earlier this week.

The dollar was a fraction firmer on the yen at 111.11, having hit a four-month low of 110.62. Against a basket of currencies, it was crouched at 99.843 having shed 1.5 percent in the past two weeks.

“The dollar is likely to struggle as global investors gradually realise that the U.S, can still produce policy gridlock even with one party holding the White House, Senate and House,” said Sean Callow, a senior currency analyst at Westpac.

“Moreover, the euro is looking more appealing, with the growth gap with the U.S. not as wide as previously thought and the euro having lost some of its political risk premium as European voters edge away from local Trump wannabes.”

In commodity markets, safe-haven spot held at $1,245.61 an ounce after hitting three-week high of $1,253.12.

Oil prices idled near four-month lows on investor concerns that OPEC-led supply cuts were not yet reducing record U.S. crude inventories.

U.S. crude inched up 14 cents to $47.84 in early trade, while Brent crude added 12 cents to $50.68.