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A Singular Viewpoint

A Singular Viewpoint

John Hsu
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Overview, April 12, 2017

Geopolitics is the current prevailing driving theme for financial markets. Europe is preoccupied with Brexit and elections as well as financial issues for countries such as France, Greece, Italy and Germany. Rising tension with Russia with the current focus on Syria dominate Washington’s relationship with Moscow. With regard to the US’s relationship with China, much is up in the air since President Trump has threatened to label China a currency manipulator many times over and currently is using trade as a leverage for China to pressure North Korea on the nuclear issue. The US is sending an aircraft carrier battle group to the North China sea in anticipation of any further nuclear tests on the part of North Korea.

As much as the world is on pins and needles in a geopolitical sense, global financial markets are by and large calm and stable.

In the US, although the new administration is not yet fully staffed, much has been attempted and some accomplishments have been achieved. The most noteworthy achievement has been the successful appointment of Associate Justice Gorsuch to the Supreme Court. The most noteworthy disappointment has been the failure to repeal Obamacare. President Trump attempted to move on the repeal after 17 days in office and clearly it was a bridge too far. Nevertheless, for a healthcare act that was reviled by the Republican Party, it was a surprise that the moderates and conservatives could not hang together not only for the good of the party, but for the nation. The failure in passage reveals the deep-seated philosophical differences within the Republican Party that extend to many issues and may likely continue to cause division over the next 3-3/4 years. The Democrats in the meantime are acting obstructionist on everything that a Republican White House or Congress want to do. This presents a rather awkward if not ugly scenario going forward.

For President Trump to accomplish his agenda during the remainder of his term, it is essential that he not only repeal Obamacare, but enact a more efficient healthcare system for the nation. Thereby he can follow through with the tax cuts that the nation is anxiously looking forward to. Hopefully, with his much touted skills as a negotiator he will be able to nudge the Republican Congressmen and Senators to come together after the Easter recess on the repeal issue.

The markets are behaving as if they are looking for a positive outcome. Clearly that changes with every signal, positive or negative, we receive from Washington. After such a massive rally since the Presidential elections, we had believed that the market was ready for a pause anyway and the defeat of the new healthcare bill only gives it more justification. At this point all on the Trump agenda, tax cuts, infrastructure, and border tax are backed up. So it is critical for President Trump and Speaker Ryan to clear the deck on healthcare. We believe that the direction of the market will likely depend on that outcome.
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