With the Fed now expected to stay a somewhat slow but steady course towards monetary policy normalisation, hopes and attention are increasingly directed towards Capitol Hill and the Republicans’ deliberation of Trump legislation: with today’s focus being healthcare. ‘Now good friends’ President Donald Trump and House Speaker Paul Ryan have been lobbying and negotiating hard to convince enough House Republicans to approve their Affordable Care Act. Momentum does seem to have gained in recent weeks. Given that they have waited over 7 years to repeal Obamacare, many will reluctantly support this core campaign promise despite believing it doesn’t go far enough and remains unaffordable. Conservatives from the Freedom Caucus to the Koch brothers argue that the bill is more of an amendment than repeal and includes a number of new tax credit entitlements.
Only 21/22 dissenters should be enough to derail the bill: likely causing an upset to stock markets. 25 members of the Freedom Caucus voting against it would thus be enough to delay this - effectively stalling tax reform and some infrastructure spending which are largely dependent on first closing this healthcare deficit. Moreover, the healthcare bill passing the House is the easier part; it will be much harder to push the bill through the Senate with its slimmer Republican majority. Whether or not the healthcare bill passes this hurdle there will be many ensuing opportunities for disappointment. We may have to continue waiting for the ‘blitz of economic stimulus measures, including tax cuts, deregulation and infrastructure spending’ which markets have hoped for since November (and priced in with the S&P up 10%). After Tuesday’s 1% fall in US equity indices, markets remain jittery. If the bill passes this stage there may be scope for some equity gains. But in our view the potential for downside surprise remains greater as upsides are tempered by all the lingering hurdles to growth stimulus and much expectation already priced in.