Tax Reforms Drive Global Indices Higher & Greece Set to Return to Capital Markets
Politics Looms Large
There is plenty of economic data out this week which will move markets, including a new services PMI for China, the US trade balance for October, Japan’s latest GDP figures and more, but fresh figures are likely to be overshadowed by political events, the most obvious being the GOP tax plan, but also any updates from the Mueller probe on White House links to Russia.
Stock markets are set to rally strongly today in the US, with Dow futures already soaring by 200 points, as investors rush in due to optimism over the Republican tax bill which passed in the Senate late Friday, signalling Trump’s first major legislative victory since he took office.
There is a huge amount of skepticism pertaining to the contents of the bill, with Democrats unsurprisingly taking aim against it for cutting taxes only for the rich, while Republicans claim this is a tired cliche, and that the cuts will help millions of ordinary American families, as well as corporations, who will benefit from a cut to corporation taxes from 35% to 20%.
An independent committee found that the bill could add $1 trillion to the national debt, but Republican leaders believe this would be offset by the reforms positive effects on economic growth, encouraging domestic investment and improving the competitiveness of American businesses.
Regardless of naysayers in Washington, stock markets are taking the news as a big green light for further gains today. European indices are already rallying up strongly. Italian and German indices lead the way, as the DAX sits above the 13,000 points mark, up +1.10%, while he FTSE MIB is up +1.12% too.
Asia markets seemed mixed at the close in comparison. The KOSPI in South Korea advanced further than most (over +1%), despite new US/South Korea joint-military drills being launched today, just a week after North Korea test fired its longest range missile ever. White House national security adviser HR McMaster did little to stem fears about a conflict with the DPRK under Kim Jong Un, saying to the Reagan National Defense Forum in California that potential for war with North Korea was ‘increasing every day’.
British leader Theresa May is set to meet EU leaders later today for further Brexit talks which could determine whether the UK is able to start discussing future trading arrangements with the bloc after the UK exits in March 2019.
The BBC has reported that deals were reached over the weekend on the ‘divorce bill’ (to the tune of around €50 billion agreed by the UK), as well as citizens rights for those EU nationals living in Britain, and British people living elsewhere in Europe. However no agreement on Northern Ireland’s border has been reached yet, and the government in Dublin seems highly frustrated with the lack of progress.
Watch #gbpeur #gbpusd today in Invstr. Any signs of further deadlock will send the value of the Pound down, while a breakthrough will likely do the opposite.
Greece Set to Return to Capital Markets
After years of economic pain for Greece and bitter tussles between its government and European creditors, the country may be set to return to a level of economic normality not seen since before the debt crisis began in 2009.
Over the weekend, Greece and its Eurozone creditors agreed a preliminary deal on reforms the Greek government in Athens needed to make, which could see it exiting the the EU’s bailout plan as soon as August and once again being able to borrow on the worlds capital markets.
The deal, which covers fiscal issues, energy and labor market reforms, bad loans and privatizations, is widely expected to be approved today by Eurozone finance ministers in Brussels.
The ruling left-wing Syriza government in Greece has been honoring its commitments to its lenders, following the rules and showing greater willingness to make compromises. With the Greek economy looking healthier, the government is anxious to emerge from 7 years of dependence on bailout financing.
In July this year, Greece returned to the bond market for the first time since 2014, representing yet another significant step forward for an economy that is still suffering from significant challenges such as high unemployment levels, austerity measures and poor consumer spending.
As of August this year, the unemployment rate in Greece sat at a worrying 20.6%, though this was slightly improved from 20.9% in July, according to Eurostat.
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