The failure of the US Republican party to pass legislation repealing the universal healthcare act may come back to bite markets. This uncertainty could bring a slow and cautious start to the Asia Pacific trading week. An absence of high impact data this week may see market action dominated by Britain formally triggering its European exit.

After a 15% post-election rally US stocks are vulnerable to any political shocks. The failure of the Obamacare repeal is not economically significant, but a hostile parliament threatens the positive outlook. Improvements in the US economy and earnings outlook are drivers, but optimism about legislative changes is also a factor in the gains. The Republicans demonstrated that they can’t agree on the form of a bedrock policy commitment, potentially undermining any hopes for tax cuts and infrastructure spending.

The news broke in the last two hours of US trading. The market indices were initially off around 1%, but bounced back to finish close to unchanged. The test for markets comes tonight, as American investors face the first full session of trading. A significantly weaker USD suggests the news is not fully priced into shares.

A lack of economic news this week means international action is the likely main influence on local trading. The Brexit trigger comes at a time of strength for both the Euro and the Pound. A potentially positive reaction to the start of the formal process is foreshadowed by recent gains by the Pound over the Euro. 

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