Doubts over Trump’s tax reforms causes USA equities to slip, yen rises, whilst Japan’s main index reaches a twenty five year high

Nov 8 • Morning Roll Call • 55 Views • No Comments

Trump’s Republican Party are facing tough opposition from the Democrats, to push through their tax cut agenda, who have described the fiscal policy as a “total mess”. It must be noted that the DJIA and SPX have risen circa 22% since Trump was inaugurated and 30% YoY, not due to increased earnings or spectacular company results, but mainly due to investors quickly “doing the math” and calculating that a cut in the main corporate tax rate; from circa 35% to 20% or lower, will lead to: increased profits, superior dividends and a rising tide of markets, that will lift all boats.

The shrieks and wails of pain, if equity markets correct back to their YoY or year to date level in January, would be deafening, particularly as it’s generally small, private investors who develop the courage to finally move in, when a market gets overbought. That annual rise could (in theory) be blown away in quick time given that it’s entirely dependent on a Trump election promise. However, there’s sure to be a compromise, given that the Democrats won’t want a crash, as they’ll be equally vested, in terms of their personal interests. In the only economic calendar event of relevance Americans appear to have continued their insatiable appetite for fresh credit; the monthly figure for September came in at $20.83b, smashing the forecast of $17.5b, and up circa $7b on the August figure of $13.06b.

As the main U.S. equity markets slipped back from their recent record highs on Tuesday, the USD experienced mixed fortunes versus its main peers; up versus the euro, the Canadian, Australian and New Zealand dollar, the currency fell marginally, versus both yen and the U.K. pound. JPY experienced a positive day versus its main peers, whilst the Nikkei index reached a 25 year high, now up circa 36% year on year. Perhaps our famed Mrs. Wanatabe has developed new market trading skills, over and above her ability to trade FX through the carry trade. The optimism in Japan has been increased since the general election returned Abe to power, with an increased mandate to pursue his economic reforms.

The U.K. pound made gains versus the majority of its peers on Tuesday, despite negative data concerning the retail industry; with the trade body the BRC reporting that sales have fallen by -1.0% YoY. However, what often appears to be the principal economic activity in the U.K. (other than tax evasion and avoidance on an industrial scale), of selling houses to each other for more and more money, enjoyed a boost in the form of Halifax bank, who claimed house prices have risen by 4.5% YoY.

Similar to the U.S dollar, the euro also experienced mixed results on Tuesday, EUR/USD whipsawing through a narrow bearish range, at one point falling through S2, to eventually finish down circa 0.2%, just above S1. In terms of economic data; retail sales for the Eurozone beat forecast by coming in up 3.7% YoY, whilst German industrial production missed the forecast by coming in at 3.6% for September, down from 4.6% in August.

U.S.DOLLAR

Despite rising versus yen in the European session, USD/JPY fell through the daily pivot point to end the day down circa 0.1%, at 113.9. USD/CHF whipsawed through a tight bullish range, giving up its european session gains; rising through R1, the currency pair, which is often negatively correlated with EUR/USD, closed out the day up circa 0.1% at the critical handle of 1.00. USD/CAD rose by circa 0.7% at one stage throughout the day, to end up above R1 up 0.4%, at 1.277.

EURO

EUR/USD whipsawed through a bearish range through the day, initially rising through the daily pivot point, the currency pair fell through S2 and down circa 0.7% during the European session and a low of 1.158, to then recover moving up through R1 to end the day down approx. 0.2% at circa 1.159. EUR/GBP ended the day short of S1, down circa 0.2% at 0.880, the currency pair has oscillated between the 100 and 200 DMA during the past fortnight. EUR/JPY also closed the day out down circa 0.2% at 131.9. EUR/CAD once again breached the 100 DMA, without breaking through with any momentum, ending the day down circa 0.2%.

STERLING

GBP/USD traded in a tight range lacking any direction on Tuesday, initially falling through, then pushing up through the daily pivot point, closing out up circa 0.2% at 1.317. Versus both Australasian dollars GBP made significant gains; GBP/AUD breaching R2 ending the day up approx. 0.7% at 1.720. GPB/CAD rose by circa 0.6%, ending the day at R2.

The Canadian dollar fell versus the majority of its peers throughout the day’s trading sessions, as did the Aussie and kiwi dollars, as commodity currencies they’re often sensitive towards changes in commodity values, whilst several emerging currencies fell by circa 2% in value versus the dollar, during Tuesday’s trading sessions.

EQUITIES AND COMMODITIES SNAPSHOT FOR NOVEMBER 7th

• DJIA closed up 0.04%.
• SPX closed down 0.02%.
• FTSE 100 closed down 0.65%.
• DAX closed down 0.68%.
• Euro STOXX closed down 0.64%.
• WTI oil ended the day down circa 0.2% at $57.03 per barrel.
• Gold closed down circa 0.3% at $1276 per ounce.

KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 8th

• USD MBA Mortgage Applications (NOV 03).

• CAD Housing Starts (OCT).

• NZD RBNZ Official Cash Rate (NOV 09).

• JPY Machine Orders (YoY) (SEP).

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