Stocks Fall Ahead Of U.S. Tax Re-Vote

Europe

European stocks have slid into the red as the bullish momentum has evaporated. Last night, the US House of Representatives voted in favour of introducing the new tax reforms, but due to a procedural snag, they will have to vote on it again today. Investors have been looking forward to this day Donald Trump won the Presidential election, and now that it has arrived, traders are unwinding down their positions. Dealers are squaring up this books ahead of Christmas and some of the froth is being taken off of the top of the equity markets.

Shares in Carillion (LON:CLLN) are up 1.5% after the troubled construction company announced Andrew Davies will be starting his role as CEO on 22nd January, rather than the 22nd April. Mr Davies has been recruited to help the struggling company turn itself around. This won’t be his first time at the helm of a construction business, as he is currently CEO of Wates Group.

Low & Bonar (LON:LWB) revealed the departure of CEO Bret Simpson, and he will be replaced by Trudy Schoolenberg with immediate effect. The company issued a profit warning in October, which sent the stock lower, and today’s announcement has seen the stock fall by 18%. The share price fell to a level not seen since early 2015, and if the bearish sentiment continues it may target 50p.

US

US equities are a mixed bag today are traders await the re-vote in the House of Representatives. The tax reforms are expected to be passed again, and dealers are hoping there will be no snag this time round.

The changes to the tax system are tipped to be the deepest tax cuts to for the American middle class in 30 years. The corporate rate will be reduced to 21% from 35%, which is likely to halt American companies relocating overseas for tax purposes. We could also see US corporations repatriate funds, which could fuel stock buy-backs or perhaps mergers and acquisition (M&A) activity.

The US housing market continues to move from strength to strength as the November total home sales figures jumped to a seven year high. Earlier this week the national association of home builder’s (NAHB) market index rose to a level not seen since 1999.

FX

GBP/USD is being pushed higher by the weakness in the greenback. The US dollar has been drifting lower lately as traders have been wondering how much of an economic boost will be derived on the back of the proposed tax cuts. Today’s move has more to do with a dip in the US dollar rather than traders being bullish on sterling. The IMF cut its growth forecast for the UK for next year to 1.6%, down from 1.7%. The organisation also anticipates 1.5% growth for the British economy in 2018. IMF chief, Christine Largarde stated the UK government has made ‘significant progress’ in lowering the deficit.

EUR/USD is also riding high on the back of the dip in US dollar, and the currency pair hit its highest level in over two months. It has been a relatively quiet day for economic data from the eurozone. German PPI cooled to 2.5% in November, down from 2.7% in October. The slight easing of producer prices should be taken in the context of a booming manufacturing sector, so overall the economy is still performing well.

Commodities

Gold is being propped by the soft greenback and the metal managed to register a two week high. The cooling of the bullish behaviour in global equities has helped gold tick higher too. Traders aren’t thinking about another rate hike from the Federal Reserve until spring of next year, and even then the outlook is cloudy as the new members of the US central bank won’t be known for a few months.

WTI and Brent Crude have turned lower after hitting a one week high today .The oil market has been experiencing relatively low volatility recently. The energy market has been in an upward trend since June, and it is still hanging onto its gains.

The latest energy information administration (EIA) figures show that US oil inventories declined by 6.49 million barrels, while traders were anticipating a draw of 3.8 million barrels. Gasoline stockpiles grew by 1.23 million barrels, and the consensus was for a build of 2.1 million barrels.

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