Financial market research and analysis

 -Stocks in Europe open mostly higher

-Expecting a higher open on Wall Street

-World Bank predicts China slowdown next year

-EU has a non-negotiating position on Passporting

-Old Mutual shares gain after it sells single strategy fund

-The euro is up ahead of German IFO

-Dollar muted on tax plan

European stocks open higher

More record highs on Wall Street have setup European shares for a positive open on Tuesday. The general state of optimism heading into year-end meant investors were less sensitive to negative news flow.

Bank shares brush off Barnier’s City-slap

The British pound as well as banking stocks held up well in the face of an aggressive new position from the EU chief negotiator on Passporting. Barnier has gone a step further beyond on ‘Passporting’ by suggesting there will be no special deal to protect the UK’s financial services. It’s widely believed that harm to London as a financial hub would hurt Europe as business shifts to the US and Asia instead. It would appear to be another example of the EU prioritising politics over economics, which doesn’t bode well for phase two of Brexit talks next year.

World Bank predicts China slowdown next year

The World Bank is expecting Chinese growth to slow to 6.4% in 2018, down from the 6.9% averaged so far in 2017. The idea is that some growth needs to be sacrificed for economic stability and to support the re-balancing from export-led manufacturing to consumption. We are not convinced Chinese authorities will want to show loss of control via a significantly slower growth rate.

Old Mutual says TA for fun sale

Shares of Old Mutual gained 4.5% on Tuesday after disposing of its single-strategy asset management business for £600m to TA Associates. OM Shares had already touched a 3-month high this week in anticipation of the sale. The disposal was first touted in a presentation last month. It’s a significant step in the turnaround plan which is breaking up the company to refocus on UK wealth management.

Higher open expected on Wall Street

Shares on Wall Street are expected to open higher on Tuesday after notching new record highs on Monday. The optimism comes ahead of a vote by the House of Representative on the new combined House/Senate tax plan. The Senate vote is expected sometime afterwards on Tuesday or Wednesday. The tax plan is getting all the credit for the rally but maybe Santa should get some too. Technology shares performed strongly despite being seen as a sector that won’t be a top beneficiary of tax reform. The Nasdaq is expected to make more gains beyond its first ever close above 7000.

FX and stocks react differently to tax plan

The difference in reaction between FX markets and the dollar says a lot about where the expected economic benefits of the tax cuts will fall. The tepid reaction in the US dollar would suggest markets are not prepping for inflation-inducing runaway growth as a result of the plan. The weakness in the US dollar as well as growing concern about a flattening yield curve have helped gold gain $25per oz in 5 days. Without any growth impact from the tax plan, the 19% rally in the S&P 500 already outstrips the 14% tax cut.

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