The failure of US Congress to repeal the Affordable Care Act has hindered the so-called Trump Trade, says BlackRock’s CIO for global fundamental fixed income.
Better known as Obamacare, the healthcare act was set to be repealed by the Trump-led administration, but failed to get enough support from Republican-led Congress.
BlackRock’s Scott Thiel says healthcare repeal should have been a “quick win” for the White House and that the failure to get it passed will slow or water down the three pillars of the Trump administration: tax reform, infrastructure spending, and regulatory reform.
“The Trump administration’s failure to get Obamacare repealed has to cause a moment of reflection in the US political process going forward,” says Thiel, who labels the country as a political risk for fixed income.
“The big discussion that’s obviously now going on in the financial markets is whether risk assets should now reflect the lower probability of a broader reform and a lower tax cut to corporate America.”
Thiel’s base case is that some form of corporate or individual tax relief will go ahead, but that the scope of it will not be as large as originally anticipated.
“There will have to be some way of funding that, so will that be through a border tax adjustment, better assumptions for the budget and growth in the US going forward, or repatriation of money taxed at a lower rate.
“But the general scope of it tends not to be as large as originally anticipated.”
Thiel points out that there are several delays ahead that will hinder Trump’s reform timeline, including Easter recess for Congress over much of April, a decision on the Supreme Court appointee, and the US debt ceiling.
Thiel is not alone in his views with Jupiter’s head of strategy for fixed income Ariel Bezalel warning on “too much hope being priced in to risk assets” in the US.
“We remain cautious on what I am calling the “Trump gap” – that is, the scope for disappointment between now and when Trump delivers his policies.
“Firstly, we think it is highly unlikely that his trillion dollar infrastructure spending plan will successfully pass through Congress without being watered down. There are also indications that his tax reforms will be pushed back to next year.”