Attention is on tax reforms and global risks

Geopolitical uncertainties are vying with more prosaic issues of US tax reform for market attention.

By Emirates NBD Research

Geopolitical uncertainties are vying with more prosaic issues of US tax reform for market attention. Despite improving global growth, markets face significant distractions in Asia where President Trump is visiting, in the Middle East where tensions are rising, and in Europe over Brexit. The coming week will see more of the same, with tax reform at the top of the US domestic agenda, even as Trump’s Asia trip continues to dominate the headlines. Inflation data will also be important in the US and the UK in determining how quickly and how much by interest rates will be raised further.

The focus in Washington will be on the House and Senate as they try to reconcile their respective tax plans in time for a possible vote before the end of the year. Differences are likely to emerge over the Senate's bill which would delay the proposed 20% corporate tax cut until 2019, while uncertainties over other aspects of it will also be a potential limit to further equity market gains. Rising yields are helping to underpin the dollar for now, which is sustaining its recent gains, as bond markets are becoming concerned about a possible surge in the budget deficit. Inflation data has the potential to add to such pressures if they show underlying prices turning higher, which is expected, even as headline prices may be tamer as last month’s headline energy price rises moderate. Other data releases from the US are also likely to be largely reassuring, showing that retail sales and industrial production go off to a strong start in Q4. Speeches by Fed officials will also draw attention now that Yellen’s successor Jerome Powell is known, with Yellen herself speaking at an ECB sponsored event on Tuesday alongside Mario Draghi, the BoJ’s Kuroda and the BOE’s Mark Carney.