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US markets set new records ahead of possible tax reform vote

US equity markets continued where they left off last week once again posting new record highs with the Nasdaq pushing above 7,000 for the first time ever, as more and more Republican senators come out and publicly back the US Presidents tax reform plans, with many expecting a vote on the plans to take place and be passed later today.

Asia markets, with the exception of the Nikkei225 followed on that US enthusiasm, helped on their way by firmer commodity prices, which have boosted the mining sector.

This week’s optimism has been fuelled by the fact that two previous critics of the reforms in Marco Rubio and Bob Corker have openly said they will back the plans, after initially saying they were unhappy with some elements of the proposed legislation.

While stock markets appear to be unwaveringly enthusiastic about the prospect of tax reform getting passed this week, US bond yields showed little sign of matching that enthusiasm, while the US dollar had a disappointing day, sliding lower on the day.

European markets have also seen a pickup in sentiment heading into the final full trading week of 2017, taking advantage of the tail wind from US markets but also from a raft of M&A deals that have been taking place over the last couple of weeks or so, from Disney and 21st Century Fox in the US to yesterday’s deal by France’s Thales to buy Gemalto, while last week we saw European shopping retail estate giant Unibail Rodamco move in on Westfield, after its sector peer Hammerson set its sights on Intu.

With UK bookmaker Ladbrokes Coral also in advance takeover talks with GVC, this month has been a big month for M&A deal announcements, which rather begs the question as to whether the sudden flurry of deals could be as a result of companies looking to get ahead of possible rises in interest rates as we head into 2018, or over optimism about what next year might bring in terms of growth prospects?

The pound had a fairly decent day yesterday after the latest CBI manufacturing survey showed that industrial orders stayed at a 30 year high in December. The UK’s economy may be growing at a slower rate than a year ago, but the manufacturing sector appears to be on fire.

On the data front the latest German IFO business survey is expected to make another post-unification record high in December at 117.60, after the November number posted a similar record high of 117.5. Another decent number here will further reinforce the expectation that the German economy will finish the year on the front foot, despite the political gridlock at the top of government.

There are times when a little political paralysis can be a good thing as it means politicians don’t have the time or ability to meddle.

EURUSD – continues to range trade between 1.1920 and the lows of the last couple of weeks at 1.1700 A move below the 1.1700 area retargets the November lows at 1.1570.

GBPUSD – currently has support around the 1.3300 area which is also this month’s lows. A break through here opens up a test of trend line support from the March lows at 1.3200. A break above the 1.3420 area reopens a move towards 1.3500.

EURGBP – still unable to move beyond the 0.8880 level and 50 day MA which is currently preventing a retest of the 0.8980 area. Key support remains back at the 0.8740 area, with a close below targeting a move towards 0.8650.

USDJPY – continues to range trade with resistance at the 113.80 area and solid support down near the 111.60 area. A move below 111.60 retargets the 110.70 level.

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