US Closes Unchanged On Trump’s First Legislative Victory
US markets paused for breath on Wednesday, after the Senate approved the long-awaited US tax reform bill, and the House of Representatives passed the bill again, owing to a procedural snag. The Dow finished down 0.1%, the S&P declined 0.08% and the Nasdaq fell 0.04%.
The final bill sees corporate tax cut from 35% to 21%, whilst income tax rates will be reduced across all seven income tax brackets. The votes in both the House and the Senate were made along party lines. The US markets certainly didn’t end with the bang that might have been expected, however, that is because the passing of the bill had already been priced in.
US GDP and PCE coming up
Interestingly the dollar closed lower again on Wednesday, despite US Treasury yields hitting a 9-month high and despite the best US existing home sales growth since 2006. Before we wind down for the Christmas break, there is still another round of high impacting US data for investors to digest. This includes US 3rd Quarter GDP revisions today and Personal consumption expenditure data on Friday. Given the robust data across the month and particularly the growing retail sales figures, a downward revision for GDP would be surprising. Today's GDP data may only be relevant if there is a strong divergence from the previous estimate of 3.3%. The dollar is picking up heading towards the release, after 3 straight sessions in the red.
EUR/USD hits 2 ½ week high
Over in Europe, the euro charged higher in the previous session hitting a peak of $1.1901, its strongest level since 1st December This was thanks to increasing German bond yields, rather than down to German PPI data, which was softer than the market had been expecting. The Dax also finished lower on Wednesday, on the back of the soft data, although the futures point to a stronger start.
Catalans return to the ballot box
Today there is no high impacting economic data in the eurozone. Instead, investors will be watching Catalonia in Spain with a nervous eye, as regional elections are due to take place there. These elections will serve as a test of sentiment towards the independence movement, which stirred up chaos in the Spanish region just a few months ago. Should the pro-independence party gain seats in the election, the euro could move lower, pulling EUR/USD off Wednesday’s 2 ½ week high.
EUR/USD is currently finding support $1.1860. Should nerves over the election in Catalonia weigh on the euro on Thursday, the pair could dip to $1.1830 before falling to $1.1800. However, it is also worth baring in mind that the pair will also be impacted by US dollar flows, which have been negative over the past few sessions, but could look to move northwards in a US data heavy final two days of the week.
Pound drops FTSE futures higher as consumer confidence drops to lowest level since 2013
FTSE futures are pointing to a positive start, still comfortably above 7500, despite weaker volumes heading towards Christmas and supported by a weaker pound. Data over the past 24 hours has been less than encouraging, with CBI sales survey pointing to a decline in consumer spending and consumer confidence sinking to a four-year low. The low morale among consumers is being caused by Brexit uncertainties and the expected path of interest rates over the coming year. Neither of these two factors will be resolved quickly, which means that consumer confidence could still have further to fall in the coming year. GBP/USD dipped on the release. It is currently trading around a support at $1.3365. A fall below this level could open the doors to $1.3350, prior to 1.3325.
Opening calls
FTSE to open unchanged at 7525
DAX to open 4 points lower at 13,065
CAC to open 4 points lower at 5346