- Strong gains in Asia on tax deal (Nikkei +1.5%)
- S&P 500 RSI reaches over 80
- DAX breakout of 13,200
- Eurozone inflation data released at 10am GMT
- Barnier says EU not prepared to come up with ‘makeshift’ trade deal for the UK
- EasyJet PLC (LON:EZJ) has acquired part of Air Berlin's (DE:AB1) operations at Berlin Tegel Airport
Markets liking a bit of tax reform
The risk-on sentiment from the publishing of the Republican tax plan on Friday reverberated around global stock markets on Monday. Japan’s Nikkei index finished 1.5% higher. Market gains outside the US are not entirely logical. European companies will not directly benefit from US tax reform and may face greater competition from US firms with lower tax rates.
S&P 500 RSI overbought at 80
US stocks look set for a higher open with expectations that the new combined house and Senate tax bill will be signed this week, potentially Wednesday. Tax has been so at the forefront of why US equities have done so well, the risk is that the signing of the bill becomes a ‘sell the news event’. In a sign of how stretched US stocks are, the S&P 500's relative-strength index (RSI) is above 80 for the first time since 1995. RSI shows momentum which typically leads the price, so it’s an early warning signal of a potential top in the market.
FTSE bank stocks gain on tax rally
Construction and Basic Resources sectors are leading the charge in opening trade on Monday. The high concentration of bank and finance companies, which saw some of the strongest gains in the US on Friday is a benefit to the FTSE 100. The idea that 2018 could be a crunch year when yields turn decidedly higher is helping a global rotation into banks. Banks' net interest margins have been rising despite a flattening yield curve.
DAX eyeing breakout ahead of Coalition talks
Signs of cooperation between Germany’s two major parties may just avert another election and give German stocks one last year-end boost. The DAX index looks poised to breakout above 13,200 where it has been capped for a month. We think the SPD agreeing to talks with Angela Merkel’s CDU/CSU means a Grand Coalition is close to a done deal.
EasyJet lands in Berlin
EasyJet is making a big move into Germany, becoming the leading airline to and from Berlin, EasyJet is taking advantage of cheap assets up for sale from collapsed carrier Air Berlin. EasyJet will lease former Air Berlin aircraft, take over slots and offer employment to former Air Berlin flying crew. European airline passenger numbers are expected to grow as Europe’s economy continues to grow so EasyJet are doing the right thing to expand. Expansion in Berlin offers EasyJet both the safety of Germany’s large economy and diversification away from the UK where a weak pound is a headwind to passenger numbers in 2018.
Bitcoin drops after CME launch futures
Bitcoin futures have been trading on the CME since Sunday evening. CME Futures trading has had a negative effect on Bitcoin so far with the price of the futures down on the lofty opening price of $20,650 and the spot price down slightly too. This negative impact from CME futures on Bitcoin is likely temporary, just like it was with the launch of CBOE futures last week. Until the bulk of the volume of trading is done through futures, spot prices should dictate the futures price, not vice versa.
US opening calls
S&P 500 to open 11 points higher at 2686
Dow Jones to open 119 points higher at 24,770