Market Brief: Trump gets his way ... at last!

04 Dec 2017

Lewis Thorn

Dealing team

Equity markets in the US are expected to surge today with US indices flying to record levels following the news that the tax cuts in Donald Trump’s long awaited bill was passed in the Senate.

Today's data release
  Key levels
10:00 EU PPI   Support Resistance
15:00 US factory orders GBP/USD 1.3220 1.3550
15:00 Durable goods orders GBP/EUR 1.1065
1.1390

Market overview

News over the weekend ignited what already would’ve been an actioned packed week. Equity markets in the US are expected to surge today with US indices flying to record levels following the news that the tax cuts in Donald Trump’s long awaited tax bill passed the Senate. The differences between the Senate and House versions of the legislation now need to be narrowed down and a final version of the bill voted on, but the weekend vote passing was a significant step forward. Under the legislation, Trump plans to slash corporation tax to 20% from 35%, bringing America more in line with European countries. Markets are expected to react positively to the $1.5trn bill, which also scales back inheritance tax and repeals some key parts of Barack Obama’s health laws. In what is great news for the dollar, the bill will also allow firms with cash overseas to bring it back on shore at a lower rate of tax.
As we move towards the crucial 14/15 December EU Brexit Summit, at which the UK government hopes to get the green light to move discussions onto future trading arrangements, there is likely to be an even greater intensity in Brexit preparatory talks. The key event for this week looks to be today’s meeting between PM May, Chief EU Brexit negotiator Michel Barnier and EU Commission President Jean-Claude Juncker. There is still work to be done on a number of areas of talks (not least with regards to the Northern Ireland-Ireland border). However, the recent movement in the UK’s divorce settlement offer looks have raised the chances of a positive outcome to this meeting, setting things up in a positive light for the Summit 10 days later.

The day ahead

On the data front the major release is almost certainly going to be Fridays US non-farm payroll report, which comes less than a week before the Fed’s December meeting on the 13th. We expect the report to show the non-farm payroll gain running ahead of the +200k mark again in November; we are forecasting +230k, with some further recovery from the recent hurricane season, whilst we also look for a steady unemployment rate at 4.1. At home, the UK data calendar is packed thick too with scheduled releases including the November services PMI, October’s industrial production, construction and trade figures, November’s BRC retail sales monitor and the Halifax house price index.

Thought of the day

As 2017 draws to a close and people start thinking about Christmas, FX markets are braced for a tumultuous year end. Next week is extremely important – we have the EU Summit, central bank monetary policy decisions for the UK, US and EU, not to mention any further developments on Trump’s Tax plan and Brexit to watch out for. With this in mind we have set up conference call on Wednesday (6 December at 10.00 GMT) with our Chief Economist, Phil Shaw. Phil will give you his views on next week, as well as the key events to look out for in 2018. Click here to register for the call.

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