Financial market research and analysis

The House passed the Republican US tax reform bill with a comfortable majority along party lines on Tuesday, enabling the bill to move ahead to the Senate where again it passed. However, a procedural spanner in the works means that a revote will be necessary in the House.

Despite the Republican victory, the US market dipped lower, in a classic example of buy the rumour sell the fact. All three US major indices lost ground; the Dow 0.1%, the S&P 0.3% and the Nasdaq 0.5%.However, the dip could be short lived as US futures are once again on the up.

The reality is that the markets have been assuming that the Tax reform bill would pass through Congress for some time now, meaning the bullishness on the reform has been largely priced in. This explains the string of record highs in the US stock markets over the past few sessions and the reason that the markets dipped, despite a business-friendly bill being approved.

Dollar looks to Fed rather than tax reform

The expected passing of the US tax reform bill failed to spark life back into the US dollar, which has fallen in value for the past two consecutive sessions. The dollar appears to have moved on from the tax bill, now considered old news and is back to its favourite game of watching the Federal Reserve’s next move. Fed officials Kaplan and Kashkari were both more dovish than the markets had been expecting when they spoke on Tuesday, with Kashkari specifically suggesting that inflation needs to move higher before raising rates again.

The priced in tax reform bill and the more dovish sounding Fed members have pulled the dollar index back towards 93. With low volumes heading towards the Christmas break, the greenback could struggle to move back towards 94.00.  EUR/USD struck a fresh 5-day high at $1.1850 after trading at the upper end of the past 2 week’s range. Near-term support for the pair can be seen at $1.1800 whilst resistance can be expected in the region of 1.1870. Today sees no high impacting data on the economic calendar to influence trading for either pair.

Trump & May touch on trade deal

The FTSE is pointing to a mildly higher start, in spite of the stronger pound. Sterling rallied following a phone call between Prime Minister Theresa May and President Trump, where they both agreed on the importance of a swift post Brexit bilateral trade deal. The timing of this conversation was particularly useful, given the warning that the EU gave the UK in the previous session over “no special rules” for the UK financial sector. The pound has continued to remain steady around the $1.34 mark.

On a quiet day for the economic calendar, CBI sales and distribution data could catch the markets attention. Investors will be looking for a continuation of November’s sudden jump, foollowing a heavy dip in retail sales in October.

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