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Markets wait for a tax code to buy

Markets were steady on Wednesday, taking a lead from the US where President Donald Trump is expected to announce his tax plans today. A rumoured 20% corporation tax should be well-received by the investors in America’s top corporations. There is risk of disappointment if The Donald can only pull off a straight tax cut and no reform.


Equities: 280 reasons to buy Twitter?


The FTSE 100 held onto earlier gains into the afternoon. The UK benchmark remains locked in a tight range around the 7300 level. Some weakness in Sterling and general investor optimism about a US tax cut helped nudge UK shares higher. Bank stocks rebounded from declines related to a regulatory clampdown on consumer borrowing. HSBC was upgraded to buy from hold at Jefferies. A profit warning from SSE meant utilities shares were out of favour.


SSE shares were down slightly in a muted reaction to first-half earnings. Plans to raise the dividend in line with RPI eased concern about a profit warning based on a lower contribution from its Networks division. Utilities shares are mostly bought for the expected yield and SEE has a strong track record. Still, the divi now looks slightly less sustainable. There’s only so long earnings growth can diverge from earnings growth.


Twitter shares are expected to open higher on Wall Street after the social media company raised the number of characters allowed in a tweet from 140 to 280. Predictably, increasing the character limit has not been well-received by the more devout users but Twitter has to try something new to make its platform more universal. 280 characters is probably not the silver bullet to save Twitter but its encouraging to see chief executive Jack Dorsey making bold moves.


Forex: Yellen talks up the buck


The US dollar has picked up the speed of its recent gains after Federal Reserve Chair Janet Yellen hinted at one more rate hike in the US this year in her speech Tuesday night. Widening US yield spreads over Germany go a long way to explain the recent fall in the euro. Expectations for gradual rate increases have seen US two-year treasury yields reach the highest since 2008.


The pound has fallen in line with overall dollar strength but made fresh 2-month highs against the euro. Labour leader Jeremy Corbyn’s address to the Labour party conference today is of interest but plays second fiddle to Theresa May on Saturday. The Prime Minister’s future is still hanging in the balance. The reception from her party could be a key turning point in UK political stability.


Commodities: dollar denomination hurting


Commodities denominated in the dollar are being weighed down across the board by its recent strength. Copper through to oil and gold are all down in the last 24 hours. Oil has pulled back some of its kneejerk reaction higher to the Kurdish referendum. Gold falling back below $1300 per oz is an indication that the war of words between the US and North Korea can only provide fleeting buying interest.



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