European equity markets close down sharply, U.S. markets and the dollar follow suit, as Trump’s tax bill looks doomed, gold rises in safe haven trade

Nov 10 • Morning Roll Call • 49 Views • No Comments

U.S. equities and the dollar sold off on Thursday as the U.S. Senate indicated that it could take up to 2019 in order for a tax plan to be fully ratified, moreover, the government lawmakers were suggesting that the final policy (when brought into law), would not resemble Trump’s outline plan whatsoever. The tech heavy listings in the NASDAQ index witnessed the largest falls as did the Russell index, given they have the most to benefit from a tax cut, which would cut the headline rate of corporate tax from 35%, to 20%. The dollar also slumped versus its major peers, as without the plan in place, investors will also doubt the FOMC’s flexibility to raise rates in December and early 2018 and the Fed’s ability and motivation to begin engagement with a policy of quantitative easing.

Trump came in to power promising various policies to increase economic performance; whilst he doesn’t have the power to directly affect monetary policy given that it’s the Fed’s remit, other than an appointment for Fed chairperson, he’d hoped a fiscal policy of (primarily) increased infrastructure spending and tax cuts, would provide a major stimulus to the USA economy, both in terms of the famed “trickle-down effect” and improved employment numbers, with increased wages. Fundamental news from the USA, concerned the initial jobless claims and continuous claim numbers, which both missed forecast marginally. Whilst wholesale trade sales beat forecast, coming in at 1.6% growth for October. The U.S. dollar fell by 0.6% versus yen, 1.0% versus euro, 0.2% versus sterling and over 1.2% versus the Swiss franc.

European equity markets sold off sharply during Thursday’s trading sessions, despite encouraging data emerging from the Eurozone and an extremely optimistic economic report being delivered by the ECB, concerning the current state of the European Union. The latest German import and export data beat forecasts, with exports not falling as expected, down only -0.4% in September, whilst Germany’s trade balance and current account surpluses, both beat forecasts. The euro rose versus its the majority of its main peers; the U.S. dollar, sterling and yen, but whipsawed violently, through a wide range of bearish and bullish conditions, versus the Swiss franc, throughout the trading sessions.

Sterling recovered some of its recent lost gains versus several of its peers, as the political turmoil at the heart of the U.K. government temporarily calmed, due to a fresh ministerial appointment. However, the Brexit situation took a bad turn for the U.K. government, as members of the E.U. cast fresh doubts on the UK’s offer for E.U. citizens to remain in the U.K. once the exit process is finalized and without such agreement in the E.U.’s favor the U.K. will obtain no trade deal. In a quiet day for fundamental economic calendar news, the housing body RICS published a house price balance survey reading of 1 falling from 6 in September, which represents one of the worst readings for U.K. house prices, since the recession years of 2009. Sterling rose versus the U.S. dollar throughout the day, versus the majority of its other peers the U.K. pound was either flat, or ended the day down. Versus the Swiss franc the currency fell, as did the majority of currencies on Thursday, as the franc’s safe haven appeal reappeared.

In other related news; Chinese CPI came in ahead of forecasts, rising to 6.9% YoY and 1.9% MoM. Australian data concerning home loans, investment loans and the value of loans all fell significantly, directly effecting the value of Aussie dollar versus its peers. From Japan the ECO watchers surveys, both current and outlook, beat the forecasts by some distance.

U.S. DOLLAR

USD/JPY initially rose during the Asian session, to then begin a steady but significant fall through to S2, down circa 0.6%, before recovering to 113.3, down approx. 0.5% on the day. USD/CHF whipsawed throughout the day. Falling through the daily pivot point, price then recovered to breach R1, to then quickly reverse direction, to eventually breach S3, down circa 1.3% on the day at 0.994. USD/CAD fell by approx 0.6% and through S2, to close the day out at circa 1.267.

STERLING

GBP/USD slipped by 0.2% in the London/european session, the major currency pair then recovered lost ground, to close the day out up circa 0.2%, at 1.314. Versus both Australasian dollars sterling closed the day out flat, whilst GBP/JPY and GBP/CAD both ended the day down circa 0.2%. Having fallen through S2, GBP/CHF recovered to end the day close to S1, down approx. 0.3% at 1.307.

EURO

EUR/USD whipsawed through a wide bullish range during Thursday’s sessions, finally ending the day breaching R3, up approx 1% at 1.164. EUR/CHF whipsawed violently throughout the day’s trading sessions, through both bearish and bullish conditions. Initially breaching R2, then falling through S1, then breaching R1, to eventually fall through S2 and down circa 0.4% on the day, at 1.157.

GOLD

XAU/USD ended the day up circa 0.4%, resting close to R1, at $1286 per ounce. Having once again breached the 100 DMA to the upside over recent days, the precious metal continued to catch bids based on the uncertainty surrounding the USA and European equity markets and the lack of stability displayed by several leading currencies, versus their leading peers.

EQUITIES SNAPSHOT FOR NOVEMBER 9th

• DJIA closed down 0.43%.
• SPX closed down 0.38%.
• FTSE 100 closed down 0.61%.
• DAX closed down 1.49%.
• CAC closed down 1.16%.

KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 10th

• GBP Industrial Production (YoY) (SEP).

• GBP Manufacturing Production (YoY) (SEP).

• GBP Construction Output SA (YoY) (SEP).

• GBP Visible Trade Balance (Pounds) (SEP).

• GBP Trade Balance (SEP).

• GBP NIESR Gross Domestic Product Estimate (OCT).

• USD U. of Mich. Sentiment (NOV P).

• USD Monthly Budget Statement (OCT).

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