The Global Markets Weekly – 6/26/17

Posted June 26, 2017 by rvillareal

Another Health Care Vote Looming?

A defining issue of the 2016 U.S. political season was Republicans’ pledge to repeal and replace the Affordable Care Act. Now tasked with following through on the details, negotiations in the House-passed bill and now the Senate’s version have led to a situation where reform proposals are unappetizing to a number of Republican lawmakers, let alone the roughly 20 million who may be negatively impacted on coverage.

There is still a chance a vote happens this week in the Senate, but DE thinks that is less likely given Democratic and Republic pushback. The CBO has yet to score the Senate bill (may come Tuesday), but key dimensions are unlikely to be favorable save for the bottom line. Failure to hold a vote ahead of the 4^th of July recess will then mean officials get heat from voters over the break. This all as Republicans from both the conservative and moderate wings of the party have already voiced concerns. Adjustments in one direction are likely to make the other unhappy, and the summer is a bad time for negotiations.

It isn’t clear that even a legislative win on health care is what the balance of Republicans eying 2018 election prospects truly wants. The “Abilene paradox” in group management refers to a situation where despite individuals holding certain views in private about a course of action (on which they may be in agreement), a breakdown in communication yields a collective decision that is largely contrary to those individual preferences. Save for checking the box on the Administration’s agenda, the blowback from an unpopular bill could be severe in the 2018 midterms. Private wishes might be to drop the issue in favor of less-controversial corporate/individual tax reform, but to borrow poker terminology lawmakers may now be pot-committed, unable to fold.

Elsewhere this week, Fedspeak will continue with Fed Chair Yellen a fresh addition to the docket on Tuesday (on “Global Economic Issues”). Synchronized softness in global core CPI inflation measures hint at common global factors including technology, but traditional metrics of domestic labor market tightness suggest wage and price inflation should be just around the corner. How will the central bank weigh progress toward its mandates, and risks around possible future states of the world? Investors are increasingly split as to whether the Fed is still making a hawkish mistake, or remains unreasonably easy. One camp is eying policy settings that remain in the tail of the post-war distribution, while the other eyes outcomes that remain subpar relative to that same distribution.

• S.: Fed Chair Yellen will appear Tuesday, engaging in a conversation in London on “Global Economic Issues”, while other Fed speakers including Williams (Mon), Harker and Kashkari (Tue), and Bullard (Thu) are also due. Economic data include May durable goods orders (Mon), June consumer confidence (Tue), revised Q1 GDP (Thu), and May personal income/spending/prices (Fri).
• Eurozone: June consumer price figures (Fri) will be looked to for any upward thrust in the core, most recently 0.9% y/y in May.
• United Kingdom: Governor Carney will appear Tuesday as the BOE releases its Financial Stability Report.
• Japan: Consumer prices, employment, and construction data are due at week’s end, with the ex-food and energy CPI possibly peeking above 0% in May.
• China: June CFLP manufacturing and non-manufacturing PMIs (Fri) may hold just below YTD lows.

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