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27 апреля, 11:18

Trump’s Tax Reform Plan Could Lead To Rising Deficit

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US Treasury Secretary Mnuchin announced Trump’s tax reform plan in a press conference yesterday; the biggest tax reform plan since 1986. Trump has proposed slashing corporate tax from the current rate of 35% to 15%; from one of the highest in the world to one of the lowest. In terms of personal income tax, the current 7 tax bands (minimum 10%, maximum 39.6%) is to be simplified to 3 bands instead (10%,25%,35%). Trump has also called for a repeal of the 3.8% tax on investment income and death tax. The aim for the plan is to improve corporate competitiveness, encourage US companies to repatriate overseas funds held offshore, create more jobs, and spur economic growth to a 3% target. The dollar index and US stock markets nudged up ahead of the press conference lifted by market expectations on Trump’s tax reform plan. However, it was followed by a retracement after the press conference. Dow Jones and the S & P 500 indexes failed to breach the psychological level at 21000 and 2400 respectively. Although corporate tax cut will spur economic growth it will also slash more than $600 billion in revenue a year resulting in a rising deficit due to reduced tax revenue. Trump had planned to finance tax cuts by a reduction in healthcare costs after repealing Obamacare. However, as the new healthcare bill had failed to pass on March 24, the US government’s prospective financial stress will likely become heavier. Trump now expects the costs would lead to a 3% annual economic growth. Trump has also promised a $1 trillion infrastructure plan, with an increase in spending on military defense, which will further add to the government deficit during his presidency. The tax reform bill will still need Congress’s approval to pass. Considering the prospective rising deficit, it is likely that conservative Republicans might not support the tax reform bill. If Trump is unable to get enough support again it will likely lead to substantial market disappointment likely to initiate a USD and Equity sell off. The European Central Bank (ECB) will announce its interest rate decision at 12:45 BST today. It will be followed by the ECB’s press conference at 13:30 BST. Markets expect that the ECB will keep rates on hold and keep the current QE programme unchanged. However, we need to keep an eye on whether the ECB will give hints about prospective gradual QE reduction. US durable goods and core durable goods for March are released at 13:30 BST.

26 апреля, 11:15

Corporate Earnings Lift US Stocks Ahead of Trump’s Tax Reform Plan

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Last week the US President Trump stated on twitter that he will “unveil his major tax reform plan on Wednesday April 26”. Trump intends to dramatically cut corporate tax from the current rate of 35% to 15%, and will likely also make tax cut or tax exemption on US corporate overseas earnings. In terms of personal income tax, the current 7 tax bands (minimum 10%, maximum 39.6%) will likely be simplified to 3 bands instead (12%,25%,33%). After the failure of his healthcare bill proposal on March 24, markets have, to an extent, lost confidence in Trump’s leadership, resulting in USD plunging to a 4-and-a-half-month low with USD further weakening post Trump’s recent “strong dollar” statement on April 12. Therefore, his tax reform plan is crucial to demonstrate to the markets the capability of the Trump administration and to regain market confidence. The tax reform bill will still need Congress’s approval to pass. If Trump is unable to get enough support again, it will likely lead to substantial market disappointment likely to initiate a USD and Equity sell off. Q1 US corporate earnings have generally outperformed expectations. To date there have been more than 100 S&P 500 listed companies announcing their results with 77% reporting better-than-expected profits. Only 19.5% of these companies reported lower-than-expected profits mainly because of individual factors instead of market or macroeconomic factors. The outperforming corporate earnings pushed US stocks up. Tuesday evening, the Dow Jones index hit a 6-week high of 21022, and the S & P 500 index hit a 8-week high of 2392.15. A further 190 S&P 500 listed companies will report earnings this week including some major components such as: Microsoft, Amazon, Intel, and Alphabet. The mega-caps Apple and Facebook will report earnings next week. Overall US corporate earnings growth for Q1 is forecasted to be 13.7% surpassing the 10% growth seen in Q4. If US corporate earnings continue to outperform, and Trump’s tax cut or tax reform bill proposal is passed by Congress, we can expect USD and the US stock market to move higher.

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25 апреля, 11:41

Global Equities Up, Oil & Yen Weaken

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Following the somewhat centrist victory in the first round of the French Presidential Elections global markets appear to be have gained some risk appetite back with Asian equities reaching a near 2 year high on Tuesday. The election also helped lift EUR and put downward pressure on safe-haven instruments. It is therefore likely that European equities will have a strong start this morning. French Polls show Emmanuel Macron defeating anti-euro nationalist Marine Le Pen by as much as 30 percentage points in the second round of the French presidential election on May 7th. Markets are likely to see additional impetus with President Trump promising an announcement on US Tax Reforms on Wednesday. EUR was holding steady at $1.0885, retaining most of Monday’s 1.3 percent gain where EUR posted its strongest one-day performance in nearly a year; lifting EUR to a near 6 month high. EUR gains had weighed on the dollar index, which touched a four-week low overnight. The index was marginally higher at 99.134, failing to make up most of Monday’s 0.9 percent loss. USD advanced 0.4 percent to 110.32 JPY extending Monday’s 0.5 percent jump as investors sold off the “safe-haven” JPY. Oil recovered marginally, following a week of losses, although gains were restricted by concerns that purported output cuts may not affect the current oversupply in global markets. Gold recovered from last week’s lows of 1196 trading up to 1278.06 in early trading before retracing back to 1270.28.

24 апреля, 11:06

Market Concerns Eased After Macron’s First Round Victory

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The first-round voting of the French presidential election was revealed on Sunday night April 23. The two top candidates: independent centrist Macron and the far-right wing Le Pen, won 23.7% and 21.7% of votes respectively. Fillion and the far-left wing Jean-Luc Mélenchon both got around 19% of votes. The result was in line with expectations, black swans didn’t appear. The terror attack that occurred on April 20 in Paris was likely to give Le Pen one last push just a few days ahead of the election. However, the votes Le Pen got were even lower than the recent polls of 23%, indicating the probability of her presidency is lower than expectations. As Macron got the first place in the first-round of voting, surpassing Le Pen with 2% of votes, market concerns over the EU’s collapse after Le Pen’s presidency has been eased to an extent. The consensus was that Macron and the Le Pen would likely get into the second round with Macron likely winning the final vote. The outcome is in line with the first half of the consensus. Markets are now focused on the second-round of voting with the first-round outcome lifting market confidence and expectations on Macron’s victory in the second-round on May 7. The voting ratio was around 80%, higher than the forecast of 70%, indicating French civilians’ high concerns on the futures of France and the EU. The outcome of the first-round voting pushed the EUR and European stocks up, and weighed on safe havens. EUR/USD soared more than 180 points, hitting the highest level of 1.0918 since November 11, 2016. EUR/JPY hit a 1-month high of 120.72. USD/JPY hit a 2-week high of 110.53. Spot gold plunged from 1284.17 to a 2-week low of 1265.38. France’s CAC 40 index hit the highest level of 5393 since January 2008. The Euro 50 index hit the highest level of 3578.10 since March 2015.

21 апреля, 11:19

All Eyes on the First-Round Voting of the French Election

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The first round of the French presidential election will be held this Sunday, April 23rd. The market consensus for the first-round of the election is that the Centrist Macron and the far-right wing Le Pen will both capture enough votes to proceed to the second round, but this is very much still a four-horse race. Recent polls have shown there is still the possibility that the far-left wing Mélenchon could be a contender and make it into the final two, though vastly different from Le Pen, his policies would be likely to have a similar result to Le Pen with the markets seeing rallies of safe havens (such as gold, the yen and the Swiss franc), with lower European stocks and a falling Euro. The far-right Le Pen looks set to make the second round, the markets will be keeping any eye out for any possible increase of more than her expected share of vote, this would likely lead to some worry within the markets which are likely to be spooked by the possibility of a Le Pen presidency. The independent centrist candidate Macron is in favour of free trade and the integrity of the EU. HIs measures aim to change the country’s long-standing bureaucracy and excessive government control to revive the sluggish economic performance. At the moment, Macron or his compatriot Fillion are the best outcome for the Euro and the single market. Non-voting share and undecided voters are likely to play decisive roles in this election. The IFOP polls showed there are about 31% non-voting and 28% undecided voters. We are a long way from the finish line but the future fate of France and to some extent the Euro itself will be a little closer after Sundays first round of the election.

20 апреля, 11:30

France’s and EU Future, Far-Right ? Far-Left ?

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After recent news and market headlines were dominated by the UK snap general election announcement, the markets are now turning their attention towards the upcoming French presidential election. The outcome of the French presidential election will most likely result in heightened volatility for the Euro and European stock markets which look likely to be most affected by the introduction of the far-right candidate Marie Le Pen. The first round of the French election will be held this Sunday April 23. Altogether there are eleven candidates. If none of the candidates gets more than 50% of the votes in the first round, the two winners will enter the second round of the vote will be held on May 7. The consensus thus far is that the Centrist Macron and the far-right wing Le Pen are most likely to pass into the second round, with Macron being the favourite to win the final vote. But if the past year has thought us anything, polls do not always accurately gauge public sentiment and there is a possibility that La Pen could win the election. The far-right wing Le Pen, and the far-left wing Jean-Luc Melenchon are the focuses of the election because of their extreme political stances, and Jean-Luc Melenchon is the only candidate among the four whose share of vote saw an increase recently. Le Pen takes a similar stance to Trump, the focus of her policies are France first, including anti-globalization, anti-immigrants, trade protectionism, repealing the Euro and reusing the Franc, and most noticeably: making France leave the EU. Many French voters are in favour of Le Pen’s policies, due to France’s high unemployment rate and recent terror attacks; provoking citizens’ anti-foreigner sentiment. France and Germany are the EU’s largest economies. If Le Pen wins, France might leave the EU, following the UK, and triggering a level of uncertainty that could well lead to the downfall of the single market. Regardless of this weekend’s outcome we can expect to see volatility across European markets as the election moves towards the second round of voting on May 7th. The Bank of England Governor Carney will make a speech at 16:30 BST today, it will be followed by the US Treasury Secretary Mnuchin’s speech at 18:15 BST. The speeches will likely affect GBP and USD crosses.

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19 апреля, 11:23

Snap General Election Breathes Life into the Pound

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Yesterday morning, the UK Prime Minister Theresa May kick started a day of GBP volatility after her shock decision to call a snap general election for June 10th. Although the Conservative Party currently holds the majority in parliament, recent polling numbers have suggested that they will increase this majority in the general election. With some political parties, still against Brexit and a cloud of doubt surrounding the kind of deal the UK will reach with the EU, a larger majority will help strengthen the negotiating position of May when trying to achieve the best possible kind of deal. The vote in the Commons to approve the proposal for a snap general election instead of a 2020 election will require more than 2/3 of votes to pass. Some opposing parties have shown their support for the decision and the proposal is expected to pass. Uncertainty surrounding the platform outside No.10 resulted in GBP/USD initially plunged around 80 points. However, this was followed by a dramatic reversal when the Prime Minister announced the general election, sending Cable surging around 390 pips, hitting the highest level of 1.2904 since October 3, and marking the biggest intra-day volatility since January 17. The surge was helped by market expectations that the Conservative Party would become the massive majority in the parliament after the election, and that the UK would be in a stronger position during the Brexit negotiations, which would provide greater support for the Pound. EUR/GBP fell from the psychological level at 0.8500, hitting the lowest level of 0.8312 since December 5, marking the biggest intra-day fall since November 9. Volatility is expected to remain somewhat constant around GBP as the pace of Brexit begins to ramp up, with the EU and Theresa May both trying to secure the best possible deal in what could be a very messy divorce. A result of the surge of GBP was a slump in the FTSE 100 index, hitting the lowest level of 7109 since February 2, with the strengthening of GBP weighing on exporters. The mining sector in particular felt the brunt of the strengthening GBP and was one of the worst performers. In other news, the dollar has continued to weaken since Trump made the second USD overly strong statement. Tuesday EUR/USD hit the highest level of 1.0735 since March 30.

18 апреля, 11:17

Investors Turn to Safe Havens on Rising Regional Tensions

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Recent US military actions, such as the airstrike in Syria, the movement of an aircraft carrier strike group toward the Korean Peninsula and the dropping of “the mother of all bombs” on ISIS in Afghanistan has led to rising tensions amongst some of the world superpowers. The rising regional tensions have lifted the markets’ risk aversion sentiment. Investors are turning away from riskier assets towards safe havens, resulting in the weakening of US equity markets. Monday April 17, saw spot gold surge to the highest level of 1295.37 since November 9, it has rallied 2.6% since Syria strike on April 7. The first round of the French election is to be held this Sunday April 23. The latest polls conducted between April 12-14 showed a tightening race: Macron, Le Pen are both 22%, Macron and Le Pen got a lower share of the vote compared to 23% from a previous poll. The far-left candidate Jean-Luc Melenchon, has slipped to third position, with 20% of voters, which surpassing Fillion’s 19%. Jean-Luc Melenchon is the only candidate among the four whose share of vote saw an increase recently. The difference of votes between the 4 candidates is less than 3% which poses more uncertainty to the election. The US retail sales and CPI data for March released last Friday both underperformed. Retail sales (MoM) fell to -0.2%, retail sales for February was revised downward to -0.3% from 0.1%, marking the first decline since August 2016. The drop was partially caused by the recent decline in automobile and petrol sales. However, consumer electronics and clothing sectors saw a growth. Retail sales exclude autos for March (MoM) fell to 0.0%, marking the lowest growth since August 2016. US CPI and core CPI (YoY) for March were 2.4% and 2.0% respectively, marking the lowest growth since January 2017 and November 2015. Per CME’s FedWatch tool, after the release of US retail sales and CPI data for March, the probability of a rate hike in June has dropped to 46.6%. The Bank of Japan Governor Kuroda stated on Monday April 17 that employment and wages are improving steadily, consumer spending saw a pickup. The positive economic indicators continue to strengthen JPY ahead of the upcoming BoJ’s meeting on April 27. Monday USDJPY hit the lowest level of 108.12 since November 15.

13 апреля, 11:18

Dollar Plunged on Trump’s Second Dollar Overly Strong Statement

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The dollar index fell to a 2-week low of 99.91 in the early hours this morning, breaking the significant support level at 100.00. The dollar index plunged 0.58% on Wednesday April 12, and 0.88% in the past two days. The sudden fall was caused by Trump’s dollar overly strong statement for the second time this year. He expressed that if the dollar is much stronger against other currencies, it will weaken exports and corporate competitivity. Trump’s weak dollar stance is likely to keep on reining in the dollar strength. The dollar index saw a rebound in the past two hours, the bulls have recovered the significant level at 100.00. USD/JPY hit the lowest level of 108.71 since November 17. The recent strengthening of the yen hit Japanese exports. Nikkei 225 index has turned bearish since mid-March, hitting the lowest level of 18292.50 since December 5 this morning. The Australian employment change for March rose substantially to 60.9K in March, from 2.8K in February, beating expectations of 20K, marking the largest improvement since November 2015. The outperforming data resulted in the surge of AUD/USD this morning, hitting the highest level of 0.7594 since April 4, testing the psychological resistance level at 0.7600. Yesterday the Bank of Canada (BoC) announced its rate decision on hold at 0.5%. The BoC stated that although the recent data shows the economy is sound. However, the US economic outlook is still uncertain under Trump’s administration, which will likely weigh on the Canadian economy. The BoC revised the economic growth forecast upwards from 2.1% to 2.6% in 2017, helped by the sudden rise in residential investment and increase of consumer expenditure. However, business investment and employment are continuing to weaken. The economic growth forecast in 2018 is revised downwards from 2.1% to 1.9%. The overall statement showed mixed signs. Uncertainty over the Trump administration will affect not only the economic outlook of Canada, but also that of other neighbouring countries and major economies. The US EIA crude oil inventories (the week ending April 7), saw the biggest drop in 2.166 million barrels this year. However, the figure failed to push oil prices higher as it was trading at the major resistance zone, where the selling pressure is heavy. Spot WTI retraced around 1%, and spot Brent crude oil retraced around 1.13% on Wednesday April 12. Keep an eye on the US initial jobless claims (the week ending April 7), to be released ta 13:30 BST this afternoon, followed by the US Michigan consumer sentiment index (Apr) at 15:00 BST. It will likely affect the strength of the dollar and dollar crosses. The US retail sales and CPI for March, will be released at 13:30 BST on Friday, it is one of the most important pieces of data for this week. Be aware that it will likely cause volatility for the dollar and the dollar crosses.

12 апреля, 11:17

UK Retail Sales Fall on Rising Inflation and Slow Wage Growth

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UK labour market data for March will be released at 09:30 BST including claimant count, ILO unemployment rate (from Dec to Feb) and average earnings (from Dec to Feb). The data will likely affect the strength of GBP and GBP crosses. GBP/USD hit a 1-week high of 1.2500 this morning, helped by the weakening of the dollar. Bank of England Gorvernor Carney will make a speech at 09:30 BST this morning. We will likely get clues about the prospective measures that the BoE will likely take to cope with rising inflation, slowing wage growth and Brexit uncertainty. The ILO unemployment rate has seen a downtrend since early 2012. UK average earnings, including and excluding bonus (from Dec to Feb), has seen a moderate uptrend in 2016. However, the increase of average earnings, excluding bonus, (from Dec to Feb) has slowed down since the beginning of this year. UK inflation for February moved above the Bank of England’s 2% target for the first time since 2014. UK CPI (Mar), released yesterday, was 2.3% in line with expectations and the previous figure. Core CPI (Mar) fell to 1.8% in March from 2% in February. Although the latest inflation figures showed a slight slowdown the inflation uptrend is likely to continue. If the pace of wage growth is slower than the pace of inflations rise, resulting in consumers cutting down on their spending on clothing, non-food and non-necessities. It will lead to a slowdown of economic growth. The British Retail Consortium (BRC) announced on Tuesday that UK retail sales fell by 1% in March (YoY). UK total sales edged up by only 0.1% in the January to March period marking the slowest pace of growth post the financial crisis. Non-food sales fell by 0.8% in the January to March period marking the biggest decline in nearly six years. The dollar index plunged around 0.31% on Tuesday, falling from the psychological resistance level at 101.00 and hitting a 2-day low of 100.49. This morning the dollar index keeps on weakening thereby pushing gold prices up, spot gold hit a 5-month high of 1279.67. FOMC voting member, Neel Kashkari, was the only member to dissent the Fed’s rate hike decision in March. He stated his view on Tuesday that “there is still slack in the labour market and inflation needs to be higher”. The Bank of Canada will announce its rate decision this afternoon at 15:00 BST. It will be followed by the BoC’s Gorvernor Poloz’s speech at 16:15 BST. Although Canadian economy is improving, however, the US economic outlook is still uncertain under Trump’s administration. The BoC is likely to keep rates on hold for the near future. Thursday sees the release of Australian employment change and unemployment rate for March at 02:30 BST. German CPI for March will be released at 07:00 BST; it will likely affect the strength of the Euro and the trend of the DAX index.

11 апреля, 11:09

How will UK Inflation and Labour Market Data Affect GBP ?

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This morning at 09:30 BST will see the release of a series of UK inflation data for March including; CPI, core CPI, PPI and core PPI. It will likely cause volatility for GBP and GBP crosses. GBP/USD is currently trading above the psychological level at 1.2400. The German ZEW economic sentiment and current situation (Apr), and Eurozone industrial production (Feb), at 10:00 BST, will likely affect the strength of the Euro and the trend of the DAX index. UK CPI has seen an uptrend since the end of 2015, helped by a weakening Sterling rising food and fuel prices. CPI and the core CPI for February both reached above the Bank of England’s 2% target for the first time since January and July 2014 respectively. UK inflation uptrend is likely to continue; however, the economic prospect seems to be uncertain due to Brexit uncertainty. The Bank of England is likely to keep rates on hold for the near future. Wednesday April 12, at 09:30 BST, will see the release of UK labour market data (Mar), including average earnings (from Dec to Feb). If the pace of wage growth is slower than the pace of inflations rise then it will likely result in the weakening of household spending and purchasing power, which will lead to the slowdown of economic growth. To adapt to rising inflation the UK government is increasing the minimum wage from £7.20 to £7.50 this month and has frozen tax on petrol and diesel for the seventh year. Monday morning, during the early European session, the dollar index hit its highest level of 101.24 since March 15. However, it retraced and is now trading below the resistance level at 101.00. Fed Chair Yellen made a speech yesterday at the University of Michigan. She stated that “the US economy is healthy and growing at a moderate pace with the Fed close to achieving its goals on employment and inflation, neutral monetary policy and that a gradual rate hike would be appropriate”. FOMC voting member, Neel Kashkari, will make a speech at 18:45 BST this evening. There are only two weeks ahead until the first round voting of the French presidential election. Polls conducted by BVA-SALES FORCE showed a tightening race: Macron, Le Pen and Fillion are 23%, 23%, and 19% respectively. Macron and Le Pen got a lower share of the vote compared to 25% from a previous poll. Surprisingly, the far-left candidate Jean-Luc Melenchon, has slipped to third position, with 19% of voters, which is equal to Fillion, which poses more uncertainty to the election.

10 апреля, 11:23

USD Rallies as Unemployment Rate Hits a 10-Year Low

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Last Friday US non-farm payrolls for March rose by only 98K, which was far below expectations of 180K, marking the lowest growth since May 2016. In addition, the previous figure was revised downwardly from 235K to 219K. The average hourly earnings also underperformed, falling by 0.1% to 2.7% in March, from 2.8% in February. However, the unemployment rate for March fell to 4.5%, better than expectations of 4.7%, marking the lowest level since July 2007. Initially, the dollar index fell from 100.70 to 100.39 due to the underperforming non-farm payrolls. Dramatically, it was followed by a sharp reversal, lifted by the outperforming unemployment rate, hitting a 3-and-a-half-week high of 101.17. The strengthening of USD weighed on gold prices. Spot gold fell by nearly 200 points last Friday, from a 5-month high of 1270.51. This morning, the dollar index hit the highest level of 101.24 since March 15. Fed Chair Yellen will make a speech at 21:10 BST this evening at the University of Michigan. Be aware that her comments may give further clues about a rate hike in June and the shrinking of the Fed’s balance sheet. Per the CME’s FedWatch tool the latest probability of a rate hike in June has increased to 67.2%. GBP/USD fell to a 2-and-a-half week low of 1.2358 last Friday because of the soft UK manufacturing data (Feb), BoE President Carney’s comment and the strengthening of USD. Carney stated that “the Brexit negotiation would influence bank regulations and cooperation. The transition period poses a risk to the stability of financial system. The global financial system is at a “fork in the road” going into the Brexit talks”. Tuesday April 11, at 09:30 BST, will see the release of a series of UK inflation data for March, including CPI, core CPI, PPI and core PPI. It will likely cause volatility for GBP and GBP crosses. Trump has condemned China for the theft of millions of US manufacturing jobs resulting in the shutdown of numerous US factories. The Trump-Xi meeting ended last Friday symbolising the start of a new bilateral relationship. The result was in line with Xi’s goal of cooperation for mutual benefits. China will likely make a large amount of investment in the US which will create around 700,000 jobs, placing more orders to purchase Boeing airplanes, and opening of automotive, agriculture and consumer markets to US companies.