Having finished on the lows last week European markets got off to a flyer this morning and US markets are also expected to surge on the open after Republican senators managed to pass their version of President Trump’s tax reform bill, bringing closer the prospect that we may see some form of legislation by the end of this year.
It is by no means a done deal given that the Senate bill is different to the one passed by Congress in November which means any final version is likely to be revised, and then passed by both houses, before being sent for signature by the President. What is unlikely to change are the headline numbers, which means that we can expect to see the corporation tax rate number reduced substantially from its current 35% to as low as 20%.
In company news, Australian mining giant Rio Tinto (LON:RIO) announced that Simon Thompson, who is already a board member, would be replacing Jan Du Plessis as Chairman when he steps down in March next year. There had been some discussion that ex-Xstrata (LON:GLEN) chairman Mick Davis was in the frame to replace Mr Du Plessis, however this was opposed by a number of shareholders on the grounds of his management style. It would appear that the shareholders have won out preferring the more conservative style of Mr Thompson who is considered in the words of Jean-Sebastian Jacques of the Australian Shareholders Association as “a real miner”
Rising commodity prices have also seen basic resource stocks post good gains, while companies that have do a significant amount of their business in the US have pushed to the top of the FTSE100 with Ashtead (LON:AHT), Ferguson and CRH (LON:CRH) all higher on the back of the US tax reform hopes. Ferguson, previously known as Wolseley (LON:FERG), experienced a significant amount of disruption as a result of the recent hurricane season but have hit all-time highs this morning ahead of tomorrow’s trading update.
Sky’s share price (LON:SKYB) has undergone a nice lift on renewed reports that Disney (NYSE:DIS) has reengaged with Twenty-First Century Fox (NASDAQ:FOX) to purchase some of the company’s assets of which Sky is one. Fox has a 39% stake in Sky while it also appears that Comcast (NASDAQ:CMCSA) may have an interest as well.
The US dollar has also risen sharply on an expectation that a successfully passed bill could see a significant repatriation of US dollars as US companies bring back some of their overseas holdings, taking advantage of the lower tax rate, as well as raising the prospect of more share buybacks.
The Japanese yen and Swiss franc are the worst performers suffering the most as US yields push higher widening short term yield differentials significantly.
The rise in equity markets this morning has seen bond markets sell off helping push yields back up with the US 2 year yield hitting its highest level since 2008, above 1.81%, which in turn has also boosted banking stocks led by Barclays (LON:BARC), which is up 3%.
The pound appears to be treading water ahead of today’s meeting between UK Prime Minister Theresa May and European Commission President Jean Claude Juncker.
The construction sector has been one of the underperformers in the UK economy in recent months slipping into contraction in the September PMI numbers. It posted a modest recovery in October to 50.8 and appears to have continued that rebound this morning rising at its fastest level for five months to 53.1, auguring well for the UK economy in Q4, having seen a four year high in manufacturing last week. The recovery was led by housing, with commercial construction and civil engineering continuing to lag behind.
Today’s key US data is the latest factory goods and durable goods orders for October, which could well be skewed as a result of the hurricane season.
Dow Jones is expected to open 219 points higher at 24,450
S&P500 is expected to open 16 points higher at 2,658
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.