Global equities rallied for a second day as ‘risk-on’ sentiment once again dominated market direction, with the French election result kicking off the celebrations in Wall Street. 

The NASDAQ index broke above 6,000 points for the first time, cheering better-than-expected US corporate earnings and President Trump’s impending tax reform. The S&P 500 index climbed 0.6% following a 1.1% jump on the previous day. So far, over 80% of the component companies have announced better-than-expected Q1 earnings – welcome surprises which spurred renewed appetite for stocks, despite high valuations.
 
In spite of concerns that the Trump administration will be unable to deliver his fiscal stimulus promises any time soon, many investors remain hopeful of future reforms, particularly after the White House signaled this week that it plans to introduce legislation aimed at reducing the corporate tax rate from 35% to 15%. 

If implemented without considering the wider deficit, this plan will greatly enhance US corporates’ profitability and encourage household spending, causing a positive feedback loop of an economic take-off. Inflation will rise at a faster pace, which will force the Federal Reserve to adopt even tighter monetary policy measures. 

US SPX 500 - Cash


 
Safe havens get hammered

On the other hand, US treasuries slumped for a fifth day. The gold price tumbled nearly 1% to the $1,263 area as the French election result significantly reduced demand for safe havens The immediate support and resistance levels for gold can be found at around $1,248 and $1,282 respectively. 

USD/JPY soared over 1.3% to the 111.2 area, with the immediate support and resistance levels at 108.86 and 114.07 respectively. Technical indicator SuperTrend (10,3) has flipped into the green colour for the first time in three months, indicating a bullish reversal. 

Political events, earnings results and central banks’ announcements are the key things to be watched for the rest of this week. The BOJ and ECB will both announce their interest-rate decisions this Thursday. The market expects no change in their interest rates but will be carefully watching the economic outlook and future tightening plans.  

We are getting very close to the end of the ultra-loose monetary policy era, with most economies managing to avoid the deflationary trap. As policy divergence between the US and ECB starts to narrow down, the euro will likely pick up strength in the mid to long run. 

USD/JPY

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