European stock markets have been sliding throughout the afternoon.

Europe 

The FTSE 100 is just about in positive territory even though it hit a six-week high earlier today. The London market has broken out of the downward trend that it was in since early November, and if the bullish move continues we could see it target 7600 before the Christmas break.

The DAX had has handed back some of the gains it made on the back of the planned talks between the Social Democrats and Christian Democratic Union (CDU) later this week. The negotiations between the two parties could pave the way for a coalition government being formed in Germany. The two sides have been bedfellows in the previous government, and the Social Democrats paid the price for it, so the party may be cautious about teaming up again.

The IBEX 35 is in positive territory today, but traders will be treading lightly ahead of the Catalan regional elections on Thursday. The territory was thrown into the global spotlight in early October when the region voted overwhelmingly in favour of independence from Spain in a non-binding referendum. Since then, Madrid has imposed direct rule on the region. The polls suggest that 40% of voters want independence, and the Spanish market is likely to see a spike in volatility as the referendum draws nearer.

US

US stocks are in the red ahead of the vote on the tax reforms proposed by President Trump. The vote is anticipated to go ahead between 6.30pm and 7pm (UK time). There has been growing speculation the reforms will be passed. One of the main items of the tax reforms is a sizeable cut in the US corporate tax rate from 35% to 21%. This would be a huge benefit to corporate America, and it may prompt US firms to relocate back to the US.

American equity indices has been setting record higher in anticipation of the tax changes being approved ,and now we are see traders take their profits ahead of the vote. The old stock market adage of ‘buy the rumour, sell the fact’ springs to mind. So much of this story is already priced into the equity valuations, investors may begin to wonder are the markets overstretched.

FX

EUR/USD is continuing to benefit from the weak US dollar as traders are becoming sceptical about how much economic growth on the back of the potential tax cuts. The vote on pro-business tax reforms is anticipated to take place around 7pm (UK time), and traders are expecting the proposals to be passed. A large cut to the corporate tax rate, would clearly benefit companies, but dealers are unsure how much economic activity will be brought about on the back of it.

GBP/USD came under pressure after a spokesman for Prime Minister Theresa May stated the UK is seeking a more ambitious trade deal than the one that is between the UK and Canada. The same update announced the UK government is confident it will get a good deal on the economy. Trader are cautious when it comes to all things Brexit related, and until solid progress is made between the two side’s sterling could struggle to drive higher.  

Commodities

Gold has retreated slightly as profit taking from yesterday’s positive run. The metal has been bouncing back in the wake of the Federal Reserve’s interest rate hike last week. The US central bank stated its outlook for 2018 is unchanged, and traders are pencilling in three interest rate hikes next year but that could all change given the shake-up the Fed will under early next year.

WTI and Brent Crude oil are higher on the session but the energy markets have been experiencing low volatility today. In terms of the news flow it has been a relatively quiet day. The oil workers’ strike in Nigeria was called off last night, the oil market has been relatively quiet since then.

WTI and Brent Crude have been range bound lately and they appears to be plateauing after the solid upward trend that has been in place June.

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