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16/03/2017

Weekly News Bites: A picture of health

Our top picks from this week's Morning Chat

A picture of health: In its first major policy foray, the Trump administration has suffered a setback: the independent Congressional Budget Office has stated the plan to repeal and replace "Obamacare" would cause 52 million people to be uninsured by 2026, compared to 28 million if the current law stands. That notwithstanding, the bill would save the government about $34 billion over the next decade, a clear financial win, and an important consideration for many fiscally prudent conservatives. However, the US budget deficit in 2016 was at $587 billion, about 3.2% of GDP. The $34 billion saved per year would be just a drop in the overall fiscal bucket – but could mean the difference between life and death for some 24 million. And presumably their vote. (14/03)

Up to the Mark: In an election where the soul of Europe seemed at stake, incumbent Dutch prime minister Mark Rutte's centre-right, pro-European party, won a clear lead, and it will form the next government. While the far-right populist party of Geert Wilders put up a good show, a game-changing "Nexit" inducing result was not to be. Mr. Wilders’ party will still be a potent force, with 20 seats, up from 15 in the current parliament, but it is clearly less than what was expected. Indeed, it did not even beat the previous high of 24 seats his party won in 2010. (16/03)

No such thing as a free lunch: Brent crude had fallen to $50 yesterday as Saudi Arabia reported an increase in February production; but then prices rose again after the Saudis recommitted to stabilising the global oil market. They may well have been in a good mood: US President Trump hosted Deputy Crown Prince Mohammed bin Salman for lunch at the White House, a symbol of warming relations between the two countries, after a long period of tension and bitter disagreement over the Obama administration's Iran policy. (15/03)

Yield unpeeled: US bank shares are up 32% since the US election, about three times more than the wider S&P 500. Banks have been the biggest beneficiaries of the reflation trade as a steeper yield curve increases bank profits: financial institutions usually lend to clients on a long-term basis, but face shorter-term interest liabilities on customer deposits. However, with the Fed raising short-term rates, and long-term rates not rising as fast, the yield curve is flattening again; futures indicate the difference between 2 and 10 year Treasuries will narrow to about 0.9% by year-end from about 1.2% now. (13/03)

Breaking the Ice: Iceland will lift all capital controls this week. They were first implemented in 2008 as the country was reeling from the collapse of all three of its major commercial banks, and helped stabilise an economy in free-fall. The latest move is hugely symbolic of a world re-emerging from the shadows of the great financial crisis. Also, to date, Iceland remains the only country to have removed a major leader – its former Prime Minister – as a result of the "Panama Papers" leaks. (13/03)

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