The selloff in stock markets that started in North America yesterday worked its way around the world overnight. In Asia, the Nikkei fell 2.1% while the Hang Seng fell 1.1%. In Europe, the Dax is down 0.6% while the FTSE is down 0.8%. US index futures are down 0.1% trying to regain their footing following yesterday's selloff that saw the Dow lose over 1% and the Russell 2000 lose over 2%.
The rally of the last several months had been built on the notion that President Trump would come in, pass sweeping pro-business reforms and launch infrastructure spending programs quickly and efficiently and with little opposition, boosting corporate earnings this year. These dreams, however, are starting to run into reality and because of this, stocks are starting to crumble. The tipping point appears to be the ongoing debate over healthcare reform. The inability of Republicans to agree among themselves has spooked traders concerned that tax reform may also be more difficult to achieve than previously thought with border taxes particularly contentious.
Growing political risk in the US has sparked a flight of capital to the usual havens. Gold and yen are holding on to Tuesday's gains. This could shore up support for gold stocks at a time that energy stocks are under pressure and could take the baton of underperformance from financials.
Oil is getting hammered again today with WTI and Brent down 1.7%. Last night API reported. 4.5mmbbl increase in US oil inventories, way above the 2.8 the street had expected. This news has once again crushed hopes that the big build is ending after inventories declined last week.
Oil and related commodities may remain active through the morning especially around the DOE inventory reports.
The Canadian government is set to announce its latest budget later this afternoon. The centrepiece is expected to be the introduction of and infrastructure bank, but tax changes are also possible. What may be most important, however, is what the government's assumptions for energy prices and energy tax revenues are. If the market share war resumes and prices tumble again making assumptions optimistic, the government could struggle to meet its targets. On the other hand, higher prices could help the government achieve its goals.