Financial market research and analysis

The mood was firmly risk on in the Asian session overnight. Investor optimism that Trump will score his first legislative victory since becoming President lifted stocks and is teeing up the markets for a strong Monday.

Tax reform bill progress

Last week’s concerns that the Republicans could struggle to achieve the majority vote that they need in the Senate have evaporated, as 11th hour wheeling and dealing appears to have brought two wavering Senators back onside. The House and Senate combined version of the US tax reform bill was published late Friday evening and is expected to be voted on this week. The bill could be implemented as early as February.

Up until Friday’s publication, the extent to which individual US firms would benefit from the tax reform bill was unclear. With the details now released, clear winners from the tax code will be US firms which have high tax rates and mainly US based revenues. So, the likes of banks, airlines and oil refineries are expected to be big beneficiaries.  Names such as Berkshire Hathaway, JP Morgan, Wells Fargo and Delta Airline appear to be in the running for a significant boost to earnings.

Valuations look supported

Financials were big gainers in the Asian session, on the back of tax reform optimism and this could be expected to feed across to a stronger open for financials in Europe and the US. All year investors have been trying to assess the expected impact of the tax reform bill, which has resulted in the S&P soaring 18% this year. Now with the details out, some firms are looking at a boost to earning per share in the region of 15%-30%; the previously viewed stretched valuations of US stocks are suddenly looking much more supported.

Disappointment by the Fed last week was overshadowed by progress on the tax bill, which is keeping demand for the dollar solid. The dollar managed to book its third weekly gain versus the euro and is also looking comfortable close to 94.00 versus a basket of currencies.

Eurozone Inflation to tick higher

The previous week saw the euro slip after the European Central Bank (ECB) unnerved investors with its weak inflation projections, despite significant uplift in economic growth. Today sees the release of inflation data for the bloc. Inflation, as measured by consumer price index (CPI) is expected to tick up to 1.5% in November, from 1.4% in October, with core inflation forecast to remain steady at 0.9%. Should the figures disappoint, the euro could find itself heading southwards towards a strong support at $1.1715.

Brexit in focus as EU states No Special Deal for the UK In a sharp contrast to the political optimism in the US over the tax reform, politics in the UK could weigh on sentiment and see the pound test $1.33 versus the dollar.  Prime Minister Theresa May is back in the UK with her cabinet, this week, with yet another row expected to kick off. This time the EU have said that the UK will not be able to strike a bespoke trade deal with Brussels, which will intensify the rift between the Cabinet Brexiteers and the Remainers.

Today May will look for clarification over whether the UK will be able to sign up to new trade deals during the two-year transition period post Brexit.  Friday’s refusal by the EU, saw the pound drop heavily, any clarification in favour of trade deals in this period could see the pound shake off some of its recent negativity.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.