The Dollar was off overnight as we are well into Christmas trading conditions, which we often see big moves with little rhyme or reason. We could put the pullback in the dollar down to Tax bill worries, but it looks like Trump’s government will get their first major victory in the dying days of the year. Markets are also contemplating whether the much-hyped tax cuts will live up to expectation. If we look back to the facts, we can expect an extra 0.5% in GDP in addition to a 3%+ rate which we are already seeing. We can also expect a repatriation of trillions of US Dollars in offshore tax havens. Some of this will be held in other currencies so it will have to be converted, bidding up the USD. We can expect US companies to increase earnings per share by around 10% directly from the reduction in the cost of paying tax. Given that the Fed is tipping 3 rate hikes next year whilst the market is only factoring in 2, there is certainly room for the USD to appreciate due to this being far from fully priced in. With that being said, we aren’t there yet, and unlike any president before, with Trump, anything could happen.
We just had Kiwi consumer confidence come in at -37.8. The 3rd negative since the new left-leaning government has taken power. We have seen a significant shift in the mood of the NZ business community after 21 months of positive confidence numbers.
We are hearing from the RBA this morning with their meeting minutes for the Dec 5 meeting. Bear in mind, the stellar jobs numbers we saw last week had not happened before this meeting so bullish comment is unlikely.
Looking forward, data is relatively sparse as Christmas approaches. We expect quiet range bound markets and strange whippy periods as traders with deep pockets take advantage of less liquid markets, hunting for unsuspecting stop losses.
Any surprise data beats or misses can be brutal. The only release of note is US building permits in the early hours of Wednesday morning Sydney time.
Other than that, traders will be keeping a keen ear out for news from Washington on the final signing of tax reform. Stocks should rally along with of course the USD. Any delay in the new year will cause a nasty sell-off.
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