US Equities Suffer Worst Drop Since September

Daily Analysis - 22/03/2017

Sliding Bank Shares Hammer Key US Equity Benchmarks


US equities plunged the most since September after Republicans from the US House of Representatives warned that failure to pass President Donald Trump’s healthcare bill could jeopardize spending reforms. Banking stocks led the declines, recording their worst drop since “Brexit” as sentiment stumbles.

Uncertainty Looms With Trump’s Economic Agenda

The US House of Representatives is scheduled to vote Thursday on the Republican-endorsed American Health Care Act. Despite the backing of President Trump, it is still unclear whether the House or the Senate will uphold the bill. The Trump Administration was hoping to lay a major tax reform package before Congress by August, however, if the healthcare bill is derailed, the pro-growth agenda of the President is likely to face a major setback.

Investors are now forecasting that equity markets are ripe for a pullback. A whopping 81.00% of fund managers polled in a recent Bank of America Merrill Lynch's survey said US equities were the most overvalued in the world right now. Meanwhile, Dow futures are extending Tuesday’s losses, sliding back below the 20,600 level as selling pressure remains.


Japan Posts Biggest Trade Surplus in 7 Years

In another sign positive that Japan is experiencing a pickup in economic activity, the country recorded a goods trade surplus of JPY 813 billion ($7.29 billion) in February, the biggest in almost seven years as solid export growth to China buoyed the figure.

A notable jump in demand for car parts from China helped lift Japan's year-on-year exports by 11.30% to JPY 6.35 trillion - the third consecutive month of gains. Imports edged 1.20% higher in February to JPY 5.53 trillion on the back of a surge in crude oil imports according to a preliminary report published by the Finance Ministry. Notably, Japanese exports to the US grew by 0.40% last month, marking the first trade surplus in three months. USDJPY has been down since the foreign trade data was unveiled, with the pair currently hovering around the 111.300-mark.


Canadian Retail Activity Rebounds

Retail sales in Canada rebounded in January, logging the largest gain in close to seven years as consumer spending increased across most sectors, further bolstering expectations that economic growth had likely picked up since the start of the year. Retail sales rose 2.20% in January, the biggest increase since March 2010, besting the consensus forecast of a 1.50% gain. Sales at new car dealers, which jumped 4.20%, were the largest contributor to the headline figure.

The stronger-than-expected retail sales number is the latest in a series of recent economic data that have shown surprising resilience. In the past month alone, Canada’s manufacturing, trade and wholesale sales have all topped expectations. However, there are concerns that an overinflated housing market may come crashing down, creating other risks for the outlook.  USDCAD has reversed from the strong support around 1.3266, and was last seen trending just shy of 1.3370.


February’s Leading Australian Indicators Signal Trouble Ahead

The decline in the Australian Dollar accelerated further on news that a leading indicator of economic health in the country contracted last month. The Westpac-Melbourne Institute’s Leading Economic Index fell marginally by -0.10% in February from January, versus a flat reading reported during the previous month. Meanwhile, the more closely followed six-month annualised growth rate stood at 1.02%, down from the 1.34% recorded in January.

Economists reckon that despite the mild moderation in February and tough conditions to start out the year, the positive reading suggests that economic growth is still on track to be well above historic levels through the middle of 2017.  However, these gains remain contingent on external factors such as China and internal developments like exchange rates.  AUDUSD has given up ground since the figures were released, with the pair last seen trading close to 0.7670.


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