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Healthcare reform is pulled off the table.

* Healthcare reform fails.
* Dollar falls back to pre-election levels.
* UK Prime Minister May expected to officially trigger Brexit.
* Gold moves higher…

And Now, Today’s A Pfennig For Your Thoughts.

Good morning. Chuck is recovering from Friday’s surgery which went well and he plans to be back in the saddle to bring you his views tomorrow. That means we will start today’s Pfennig with a note from Frank Trotter who is on the road again.

Baltimore – When I spoke with Chuck on Sunday he said everything went well. One of the grandkids was raising a little ruckus around the house but as always he said “but he’s just so cute.”. Modern pacemaker owners will understand his response when I asked how the device was working. “Must be good, the doc hasn’t called.”. Apparently it is remotely hooked up for monitoring somewhere in the health Care system.

Well I returned home Thursday after a round two weeks on the road. And here I am in Baltimore. Who put this schedule together? (oh yah, I did) I’m off to NYC and Jacksonville next week but that should do it for a while.

Speaking of health care, or more properly medical care, I have had the opportunity to participate in three small group conferences over the last couple weeks. After my presentations we had lots of discussions on a number of the topics. Does the math work for many of the proposals (consensus was no)? What are the markets doing, are there really two parallel universes in place (again people clearly reading from different song sheets)? What will be the impact of the changes?

Well as we all know the changes came to a crashing halt on Friday. Watching the markets react through the day as the numbers were tallied showed very little change, the dollar weakened just a bit, gold didn’t do a whole heck of a lot and stock sort of sat there. Maybe Chris has some great ideas about where things will go this week.

Thanks for that intro Frank – and while the markets didn’t seem to react much on Friday they certainly began to adjust over the weekend. As I sit down to write this morning equity futures are implying the Dow will open with a triple digit loss, the dollar is back near levels it was trading at on election day, and interest rates have moved back below 2.4%. Investors are definitely taking a more defensive position following the failure of the healthcare reform.

It really isn’t just about healthcare though; instead investors are worried that after failing their first big test, Republicans may now be unable to enact their other big plans on tax reform and infrastructure spending. And these worries seem to be well anchored as the healthcare reforms were supposed to provide $1 trillion of revenues the administration were going to use to offset the tax cuts which are next on their agenda. And all of that infrastructure spending which the markets were counting after the election, investors are now questioning how much of that we will end up with also.

Worried investors are selling stocks and the dollar, shifting some of those proceeds into precious metals in what is a classic defensive move. The question which we will now wait to see is if this pattern will hold or is it instead just a knee-jerk reaction to last week’s legislative failure.

The dollar has been extending its decline in European trading, with the dollar index now approaching levels we haven’t seen since last November’s elections. The Japanese yen is one of the biggest movers vs. the dollar this morning appreciating almost 1 percent on safe haven buying. But the yen isn’t the only currency moving higher as the pound sterling is up almost as much and the euro is also higher. Weekend election results in Germany have helped push the euro higher as they show German Chancellor Angela Merkel’s Christian Democratic Union with a strong lead. These local elections confirm Merkel is in an excellent position for reelection this summer. Data released this morning showed further improvement in the Eurozone’s purchasing managers’ index for manufacturers and service providers. The IHS Markit’s index rose to its highest level since 2011 which may lead to higher expectations of a tapering of the ECB’s monetary stimulus. All good news for the euro which has bounced from a year end low of $1.03.

While the euro rally looks to gain some momentum, the appreciation of the pound sterling may run into some problems later this week as Prime Minister Theresa May is expected to officially trigger Article 50 on Wednesday. Investors won’t be surprised by this move, but the pound may still get sold after the announcement since there is really no turning back after PM May makes this move. Did you enjoy Mike Meyer’s Sunday Pfennig? I thought he did a great job pointing out another reason the dollar may be losing some of its luster: The dollar rally is definitely getting a bit long in the tooth, and Mike has pointed out yet another challenge facing the dollar.

Gold is up over 1% on the failure of healthcare reform and the resulting sell off in the global equity markets. Investors are moving back into precious metals as an ‘uncertainty-hedge’ and the moves could gain momentum as interest rates and the US$ head lower. Global investors are in a ‘risk off’ mode right now, and the precious metals have benefitted from this shift in sentiment.

The economic calendar is not loaded with ‘market moving’ data, but we do have a number of Fed speakers this week. Nothing except the Dallas Fed Mfg survey today, and tomorrow we will see the Case Shiller Home Price Index, Consumer Confidence, and the Richmond Fed Manufacturing index. Wednesday will bring Pending home sales data and then Thursday we have the weekly job numbers along with the another look at fourth-quarter GDP which is expected to tick up just slightly to 2% from the previous estimates of 1.9%.

For What It’s Worth. Since we had two separate FWIW contributions on Friday, I figured we could skip this today and instead I will run an ‘errors and omissions’ which Chuck sent me over the weekend:

Well, on Friday, I made a statement that was missing a word or two. It was in the FWIW section, about the two teens selling fake Gold bars on Craig’s List. I said then that, “it just shows to go you that you should not be looking at Craig’s List or any other bullion dealer make your Gold purchases.” Of course I wasn’t taking a shot at bullion dealers, somehow something got lost in the translation, for I meant to say, “or any other NON-bullion dealer to make your Gold purchases”. I apologize to any bullion dealer that thought I was taking a shot at them.

Chuck is definitely not a guy who takes shots at bullion dealers – so I’m sure readers will understand this more of an omission than an error.

Currencies today 3/27/16. American Style: A$ .7633, kiwi .7053, C$ .7492, euro 1.0866, sterling 1.2587, Swiss $.9848 European Style: rand 12.5874, krone 8.4483, SEK 8.7788, forint 285.46, zloty 3.9204, koruna 24.68, RUB 56.7981, yen 110.38, sing 1.3927, HKD 7.7684, INR 7.7684, China 6.8767, pesos 18.297, BRL 3.1080, Dollar Index 99.12, Oil $50.52, 10-year 2.418%, Silver $17.94, Platinum $97.73 Palladium $809.28, and Gold $1,256.83.

That is it for today.Great news regarding Chuck’s operation on Friday I’m sure everyone is excited to hear from him tomorrow. Congrats to North Carolina who pulled out an incredibly exciting win in the final seconds yesterday. I missed the game as I was sitting on an airplane accompanying Frank to some meetings in Baltimore; but I definitely plan to watch the final four finish out the tournament. I hope all of you have a great start to your week, and thanks for reading the Pfennig!

Chris Gaffney, CFA
EverBank World Markets

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