It Will Be Phenomenal!
That’s the news that the market is waiting for and the major reason why the equities markets saw new highs Friday. Trump has pledged that his long awaited policy on Tax Reform and then Infrastructure spend will be released shortly, and the market is waiting for this phenomenal tax reform, or should I say tax cut. Hopefully the policy won’t be a twitter release of 140 characters and hopefully will provide guidance on how tax revenues will be realistically increased from current levels, how the burgeoning deficit will be reined in and how growth will be stimulated and wages then to grow.
Until the moment the policy is released, markets are trading on the premise of buy the rumor sell the fact. So on a day which was relatively quiet on the economic front, on the trading front it was relatively busy. Equities surged ahead as Trump commented that an imminent release of Tax Policy was due in the next few weeks. Despite relatively lacklustre performance by many companies in their profit guidance, equities rallied as many companies are expected to fare much better with reduced taxes. Many companies are expected to bring offshore profits back onshore with the resultant being better dividends, larger share buybacks and larger profits.
On the day bonds weakened with the US10 year treasury closing around 2.41%. The USD gained as Trump, trumpeted that China, Japan and the USD would be on the same footing. Copper surged (biggest gain in almost 4 years) as demand for the metal increased and this move was exacerbated as the mine strike in BHP’s Escondida Mine continues. Iron ore had yet another day of greater than 1% increase (4 in a row) to close up 3.8%. Gold was down 0.2%. The heightened tension in the Korean Peninsula should see the USD stronger as a result of being a haven currency. Yellen testifies before Congress on February 14, and that will provide a window on the Fed’s expectations for the economy.
Aussie Market Today.
The Aussie equity markets will be strong today, driven by a combination of strong commodity prices especially iron ore, and strong equity markets. Bonds will be weaker as markets look to strong equities and the possibility of a Fed Rate hike in March. Both Bank of America and Blackrock have warned the bond markets not to give up on the Federal Reserve’s meeting in March. The AUD could slip a little on the back of a strong USD.