Markets are getting an early Christmas present as what you could call the Santa rally has started today. Hope of a successful route through both the House and the Senate for the US tax reform bill have cheered equity markets across the board and seen Wall Street add some significant gains with the Dow adding 200 plus points as we approach the European close with the S&P500 up over 10 big figures. House Speaker Paul Ryan said he expected the vote is likely to take place on Tuesday, where it will then pass over to the President if successful for his signature. The US dollar has fallen today against its major counterparts on the back of the same stories, but again it has been tiptoeing a little higher over the latter part of the afternoon.
The passage of the bill is not yet a full gone conclusion, especially when talking about the murky world of US politics.
The Democrats will be scrambling around desperately trying to turn Republican votes in their favour. Of course, all Democrats are united in their hatred for anything led by the Donald Trump administration, as well as by the feeling that thought of saving money for huge corporations and lining the pockets of America’s super-rich at the expense of every other hard working American. There is a fear in the wider financial world that the amendments to the bill at the last minute go even further to adding to the US’ already bulging national debt, and with the Fed warning that the impact of the Tax reform on the overall economy could be minimal, it’s clear that these fears have some impressive backers.
European markets have seen lower volume as was expected this week and that has caused the more aggressive moves we have seen on the major stock indices. This morning saw the release of the first bit of important data for the week in the form of the Eurozone CPI reading, however that couldn’t deter traders from buying into this rally and continuing the relentless march higher in equity markets. Both the Dow and the S&P are on course to post the most record closes in a calendar year this year with the Dow already posting 69 and on course for its 70th today.
This time of year is obviously a quiet one but that does not mean the volatility dies away, this week sees a quite a bit of data due for release including the final US GDP print for November. Around these numbers, the likely lack of volume could well be replaced by big-swinging markets with little volume on either side to prop up the book. Of course, this does depend if the number comes in away from expectations or not. So all in all the last trading week before the holidays has seen either the start of the Santa Rally or the continuation of the Trump Trade, a strategy in place since 9 November 2016.