Record closing highs for equity markets on Wall Street helped to push their Asian counterparts higher as the final week of trading before the Christmas holidays got off to a buoyant start.
The Dow and S&P ended strongly on Friday as Congress in the US is now seemingly close to passing the final bill on the US tax reform that would see a huge cut in corporate taxes. This move has been anticipated by the markets ever since President Trump took office, and if passed it would be his first major victory as President. The vote for the bill will be one of the big events of this week as both the House and Senate are expected to vote before the bill goes to the White House for Trump to finally sign it into law.
At this time of year we are always seem to talk about a Santa rally, but with markets so strong for so long that almost looks inevitable, however an end to that Tax plan saga could well be a final Christmas gift for traders. There must, however, be a degree of caution after Wednesday saw the Fed warn that any boost to the economy from these tax changes could well be moderate. The Fed’s comments came after they raised rates by another 25 basis points, but painted a cautious picture, yet again, of the economy based on the inflation outlook. However, this being said, it is expected that the Fed will continue with plans to raise rates and reduce the Fed’s balance sheet into 2018, despite a new Fed chairman Jerome Powell taking office.
Today sees a fairly quiet day in terms of macro data, and that is likely to be a theme through this week as holiday trading takes affect and the volume drops off. Eurozone CPI will be the only real headline piece during Monday’s session with the November reading expected to show YoY inflation at 1.5% with MoM at 0.1%. The euro has had a strong morning as the US dollar comes under pressure yet again, EURUSD has been playing around with the 1.1800 handle, with traders seemingly unwilling to let the pair rest above that level for too long.
The CPI readings will be the first of a string of key releases for the pair as we also wait for final November US GDP and the US durable goods orders. All in all we will get some key data released but with the lower volume we could also get some erratic moves on the major markets so be prepared volatility over some of the big announcements this week.