Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European markets were trading at a high, reflecting the approval in the US Senate of the proposed tax reform. This initial momentum will be particularly relevant in light of the short-term technical outlook of the indices of the Old Continent. On Friday the DAX broke the support zone of 12950/12900, a trend that if not reversed today, may signal an extension of the correction started in early November. This movement adds up to the Euro’s approach to the 1.20 area, which could be another weakness factor for European markets. In debt markets, the rise in US yields (as a result of the Senate’s approval of fiscal measures) is expected to spread to its European counterparts. In this context, an overperformance of the more cyclical sectors (more sensitive to the US economy) is expected in comparison to the more defensive sectors (many of them very permeable to the evolution of yields).
US indices closed Friday with contained losses. The session was marked by investors’ expectations regarding the Senate debate on tax reform and monitoring of the most relevant technological stocks such as Google, Amazon, Apple, etc. These stocks suffered sharp losses on Wednesday, with many fund managers rushing to make capital gains on these securities. The main theme of the day will be Senate approval of the proposed tax reform. In a marathon, the US Senate passed a string of fiscal measures aimed at increasing American incomes by a very small majority (51-49). Postponing the description of the main measures of this document to another time, the issues that its approval places are described. The first is the time it will take to reconcile with the proposal passed in the House of Representatives. The second is to try to anticipate (as much as possible) what the real effects will be on the real economy. The third concerns the impact it will have on the public deficit. If it is very significant, it may imply a generalized rise in yields, which will cause a profound change in the global stock market situation. The fourth, which depends a little on the others, is to know how much of the positive effects of this reform have been anticipated by the extraordinary rise of American markets in recent months.
Asian markets closed at modest losses, failing to capitalize on the positive effects of the Senate approval of the tax reform proposal. Curiously, the Asian economies, given their strong trade relationship with the US, will tend to be those that will benefit most from the indirect effects that this reform should have on the average American’s income.