FTSE +7 points at 7320 DAX +35 points at 12692 CAC +11 points at 5292 Euro Stoxx +6 points at 3561
The US dollar and the US stocks surged as Donald Trump’s tax proposal won initial approval from conservatives. The massive tax reform includes a corporate tax rate cut from 35% to 20%, a cap on top individual revenues at 35% versus 39.6% currently, repealing the alternative minimum tax, the estate tax and the generation-skipping estate tax. In addition, businesses could write off their capital expenditures over the last five years. The massive tax cut plans aim to fuel growth and revenues across the country. Though the financing of such an aggressive fiscal loosening is still a taboo. The lack of major details such as the funding of the program and the impact on the richest citizens will certainly lead to a ruthless fight in the Congress. It is not a done deal, but Republicans are pushing hard for the tax reforms and a form of agreement may be reached at some point in time. Stock investors continue relying on this hope.
The Dow Jones (+0.25%), the S&P 500 (+0.41%) and the NASDAQ (+1.15%) gained as Trump’s tax proposal could significantly benefit to the US companies’ finances. The enthusiasm regarding the tax overhaul overshadowed St. Louis Federal Reserve (Fed) President James Bullard’s dovish comments. If the US tax reform sees the daylight, the Fed will certainly forget about its concerns regarding the low inflation.
Better-than-expected US durable goods orders gave a further support to the USD-bulls at Wednesday’s session. The US second quarter final GDP data is due today. The US GDP is expected to have expanded by 3.0% quarterly annualized. A strong read could further fuel the USD-appetite. Unless there is a major negative surprise, the US dollar will likely remain bid.
{{8830|Gold}} hit the $1,282 target, the 50% level on July – September rise. The MACD (Moving Average Convergence Divergence) index turned negative, hinting at the possibility of a further and a faster sell-off. The next natural target for short positions stands at $1’270 (100-day moving average). Upside risks prevail due to the North Korean tensions. Sudden price jumps are the major risk for the sell side and could cause intermediate profit taking. Resistance is eyed at $1’294 (50-day moving average).
The USD/JPY peaked at 113.25. According to the Japan's Ministry of Finance (MoF) latest data, foreign investors stepped up their Japanese bond sales on week to September 22nd and sold net 1389.9 billion yen worth of Japanese bonds versus -55 billion a week earlier. The Fed/Bank of Japan policy divergence and the Japanese snap election risks are playing in favour of a stronger USDJPY. The next intermediate target stands at 114.48 (July high), before the 115.00 mark.
The AUD/USD edges lower. The pair is testing the 0.7820-support (major 38.2% retracement on May – September rise). A breakout below this level should suggest a mid-term bearish reversal and pave the way toward 0.7780 (former mid-term resistance) and 0.7725 (50% retracement). The carry appetite is limited due to a global lack of risk taking. The U.S. 10-Year yields improved past 2.30%, the AU-US yield spread is off by 15% since the September peak.
The EUR/USD slipped below 1.1730 (minor 23.6% retrace on April – Sep rise). The decline could stretch toward 1.1630 (100-day moving average). The MACD turned negative hinting at stronger daily negative momentum. Softer euro continues giving support to the European stocks.
Cable retreated to 1.3363 and is preparing to test a key Fibonacci support area, 1.3344 / 1.3320 (major 61.8% retracement on post-Bank of England (BoE) rally & major 38.2% retracement on August – September rise).
Softer pound helps the FTSE recovering. Long FTSE positions could target 7340p (200-day moving average). UK financials rallied on Wednesday, led by Lloyds (LON:LLOY) (+3.40%) after Moody’s upgraded the bank’s credit rating to A3 from Baa1. Gold miners were the biggest losers. Randgold Resources (LON:RRS) (-2.34%) and Fresnillo (LON:FRES) (-1.62%) traded under the pressure of the cheapening gold. Energy stocks (-0.04%) were flat.
The WTI crude failed to extend gains above $52.50 after the EIA data printed 1.8 million barrels contraction in the US stockpiles last week. The Brent crude fell more aggressively. The Brent – WTI spread is narrowing.
The Kurdish referendum resulted in 92% of votes in favour of independence. Iran, Iraq and Turkey are severely opposed to an independent Kurdish state in the region, hence the recent developments could cause more instability in the area. There are talks of economic sanctions, and/or military action. Turkish lira could be hit by rising geopolitical risks. The USD/TRY is preparing to test 3.5930-resistance (200-day moving average).