The key theme this morning is that the vote on President Trump’s changes to the Affordable Healthcare Act will now go ahead today, after being delayed yesterday. President Trump does not seem in the mood to compromise with wayward Republicans, he has given the House an ultimatum: pass his amendments to the Affordable Healthcare Act or else he will keep Obamacare in place. We won’t know if trump’s bullyboy tactics will work until late this evening, typically these votes take place late in the day.

The initial market reaction to the news that the vote was delayed was a higher dollar and a boost to US stock index futures. However, once it became known that the vote would only be postponed until Friday the dollar reversed course and is lower across the board. European stocks are modestly lower, but interestingly US stock index futures are still pointing to a higher open later today.

Why does the healthcare bill matter?

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This healthcare vote doesn’t really matter in the long-term, and its overall impact on the US economy is likely to be small, however, in the short-term this is a major risk event for US markets, as it is considered a test of Trump’s ability to get legislation through Congress. Thus, his ultimatum to House Republicans is a high risk strategy, if the vote passes then we could see the markets stage a relief rally early next week (we expect the vote to take place once the markets close for the weekend), while a defeat for the Trump administration could lead to a another leg lower for risky assets.

Phase 2 of the Trump trade

There are signs that we are moving into the next phase of the Trump trade. Whereas the first stage from November to February saw the market rally on the back of expectation of a raft of market-friendly legislation during Trump’s time in office, now the market is unwilling to rally on pure faith that Trump will fulfil his election promises; the market wants to see legislative action in Congress, which means that what goes on in Capitol Hill matters just as much for markets as what happens at the Fed and in the wider economy. Now that the market wants evidence that Trump can deliver, the bar to another leg higher in the Trumpflation trade has just got a lot higher. Ultimately this could push volatility higher as we move into Q2.

Could Trump’s fiscal spending plan be scuppered?

There was a further blow to Trump on Thursday when the Congressional Budget Office announced that cutting Obamacare would only reduce the deficit by $150bn, $186bn less than the original estimate. This is significant, if Trump wants to pass a large infrastructure spending plan then he needs to find savings elsewhere. Now that the repeal of the Affordable Healthcare Act may create smaller savings than first thought, this could limit the fiscal stimulus that Trump can get through Congress, which could have ramifications for material and industrial stocks in the US.

Market outcomes

Today’s price action should be watched carefully. At the time of writing, European markets are lower, and the dollar index is back below 100.00, Treasury yields are also heading lower after the 10-year yield tested 2.43% in early trading.

Overall, we expect that nervousness will be the defining theme in today’s session, and we could see the Vix index turn higher once again after reaching its highest level in 2017 during Thursday’s session. Although US equity futures are pointing to a higher open later today, we are not convinced, and there is a chance that these gains could be eroded as fears about this vote come back to the fore.

Can EUR/USD sustain life above 1.08?

EUR/USD is back in focus this morning after better than expected Eurozone PMIs for March across the board. At the time of writing it has started to back away from this key resistance level. Whether or not we close the week clear of 1.08 resistance is likely to depend on how the market reacts to the Trump healthcare vote, and we may need to wait for the US to come in to gauge the market mood. Overall, we think that the dollar remains vulnerable while Treasury yields remain below 2.5%. It is worth remembering that risky assets could rally along with the dollar if this healthcare vote goes in Trump’s favour, and we could see a resumption of the Trump trade, so FX traders should be careful about holding positions over the weekend in case Republicans vote with Trump and we see the dollar pop higher.

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