Throughout 2017, the promise of Trump’s flagship tax cutting programme, has bolstered the value of equities, as investors have immediately translated the cut as substantial increased profits for major corporates, leading to increased shareholder rewards and dividends. With the programme now only a step away from becoming law, it would appear that the markets have fully priced in the tax cuts, investors may now be struggling for further reason to send equity markets higher. The U.S. dollar sold off initially versus the U.K. pound and euro, but made major gains versus yen. Gold increased, edging close to the 200 DMA sited at 1269. Economic calendar news from the USA mainly concerned mortgage applications which (in an expected seasonal fall), were down -4.7% for last week, whilst existing home sales bucked the seasonal trend and beat forecasts, by coming in up 5.6% for November and at 5.81m for the year.
The Trump flagship tax reform program took a step closer to becoming law on Tuesday. Having passed a vote in the House of Representatives, the bill now passes to the Senate for final approval on Wednesday, before Trump gets the opportunity to sign off the reduction into becoming law. Questions as to what it must be like; to sign off a piece of legislation which could (according to some sources) reduce your overall tax liability by a billion dollars, will presumably not be put towards the U.S. president, as he takes the congratulations from the assembled mainstream media scrum in the Whitehouse, or on Capitol Hill. The reforms will cost circa $1.5 trillion in lost revenue over a ten year period, however, Republicans have argued (apparently successfully) that the loss isn’t zero sum, or offshored as there’ll be a form of trickle down, as the corporate tax reductions will be spent in the USA economy by the: stimulation of domestic orders, new equipment and employee recruitment.
Once again the main USA equity markets rallied on Monday to set new record highs. The dissent and disagreement amongst Republican politicians over the tax plan, appears to have been solved and the expectation is that a vote could now take place as early as midweek, with the prediction of a win in the House of Representatives and the Senate for Trump and his Republican Party. The U.S. dollar index was down circa 0.4% on the day and fell versus its major peers; GBP, EUR and JPY. Economic calendar news relating to the USA was thin on the ground, the only release of any significance came in the form of the latest NAHB index, which is based on a monthly survey of NAHB members designed to analyse the single family housing market.
We now know that the tax reduction plan is happening, the fiscal stimulus spend (as much as one trillion dollars promised to rebuild crumbling infrastructure), has curiously disappeared from the Republicans’ and Trump’s narrative over recent months. The potential infrastructure spending plan has had a negative effect on the U.S. dollar throughout 2017, and despite the Fed keeping to its promise to raise rates by three times in 2017 investors failed to bid up the dollar, which has fallen considerably versus two of its main peers; euro and sterling throughout the year. The U.K. BoE and the Eurozone ECB have delivered dovish statements during the year with regards to interest rare rises. In terms of monetary policy actions; the BoE felt forced to raise rates by 0.25% to 0.5% in November, in order to counter inflationary pressures, whilst the only hawkish move the ECB conducted was to taper its APP (asset purchase programme) by €20b a month.