Europe

European markets have bounced back strongly after finishing last week sharply lower, taking their lead from the rebound in US markets, and the passing of the Senate tax reform bill at the weekend. A weaker euro has also been a tailwind while the FTSE100 has underperformed on the back of a rebound in the pound as expectations rise that EU Brexit talks are set to move onto trade talks, as the look to agree a form of words that enables to fudge the transition into trade talks.

Hope that the passing of US tax reform will boost economic activity in the US has boosted companies that do a significant amount of their business in the US have pushed to the top of the FTSE100 with Ashtead, Ferguson and CRH all higher on the back of the US tax reform hopes. Ferguson, previously known as Wolseley, 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 has undergone a nice lift on renewed reports that Disney has re-engaged with 21st Century 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 may have an interest as well.

US

US markets have reacted to the weekend passing of the tax bill in the US senate by opening sharply higher with the Dow pushing through the 24,500 level led by Disney shares on reports that the company has re-engaged with 21st Century Fox in pursuit of some of its assets.

Also flying up the leader board Boeing shares are up sharply as are bank stocks with JP Morgan and Goldman Sachs up on the day, as US yields climb sharply.

FX

The pound has had a choppy day buoyed for most of the day buoyed up initially on the back of chatter throughout the day that the UK and Ireland may be on the way to agreeing a form of words with respect to the Irish border issue that will ensure that the next phase of talks on trade can be given the go ahead when EU officials meet later this month. In what can only be described as a form of “constructive ambiguity” some leaked drafts have referred to “continued regulatory alignment” which has prompted all manner of interventions from the devolved Scottish and Welsh governments asking for a similar sort of deal, if that is what is on offer.

In a sign of how ridiculous things have become London Mayor Sadiq Khan has weighed in, asking for something similar for London given that London voted to “remain”.

The pound then slipped back in the afternoon as it became apparent that there would be no deal today, however the tone of the May/Juncker press statement would appear to suggest that a deal could well be reached by the EU Summit next week, or before that if DUP concerns can be addressed, assuming that is where the deadlock is, which seems likely. 

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.  

Commodities

After rallying sharply on Friday gold prices have slipped straight back again, hurt by the rise in the US dollar as well as the more positive risk environment.

Oil prices have slipped back from two year highs in the wake of last week’s OPEC meeting after data showed that US production remained at elevated levels and rig counts edged back up again towards levels last seen in September. For now this appears to be nothing more than dip in the overall up trend that has been in place since the middle of the summer.

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