To the scoreboard:
Dow: 22,340.71 +56.39 (+0.25%)
S&P 500: 2,507.04 +10.20 (+0.41%)
AUD/USD: 0.7853 +0.0035 (-0.44%)
ASX200 SPI futures (December contracts): 5,661 (+20)
Iron ore benchmark 62% fines: $US64.15/t (-1.2%)
1. Trump’s tax plan has arrived: The full outline is here, and it includes a proposed cut in the corporate tax rate to 20% from 35%. The announcement of a tangible tax plan — one of the administration’s key agenda points when Donald Trump was elected — has driven moves across major US asset classes. The US dollar climbed, along with stocks while government bond yields also rose sharply.
2. USD recovery continues: The US dollar index rose again as the greenback gained ground against all the major currencies overnight. The CAD sell-off was particularly sharp after a dovish speech from Bank of Canada governor Stephen Poloz. The Aussie dollar found technical support at 0.7836 overnight, amid continued downside pressure from the recent strength in the USD.
3. Stocks climb: US stocks responded positively to the tax announcement, led by the tech-focused NASDAQ which rose by 1.15%. Here’s a post on how Wall Street says to trade around the pending tax cuts. UK and Europe indexes were also higher, and futures traders are optimistic that the strong global lead will be enough for the ASX200 to break out of its recent slump.
4. And the bond market responds: US government bond yields — which move inversely to their price — also rose overnight, with sharper moves in longer term debt. The yield on benchmark US 10-year treasuries climbed by 8 basis points to above 2.3% for the first time since late July.
5. Gold breaks through support: Increased risk appetite, a stronger US dollar and rising bond yields made for a rough combination for gold, which has dipped by almost 2% over the last two days back to around $US1,280 an ounce. Pressure remains on iron ore prices as the previous day’s rally proved short-lived, while benchmark crude oil dipped although the broader market backdrop appears to be more bullish as OPEC’s supply cuts take effect.
6. RBNZ with a dovish hold: The Royal Bank of New Zealand kept rates on hold at 1.75% this morning as expected. In its accompanying statement the bank made it clear that rates are likely to stay on hold for some time yet, and also noted that a lower Kiwi dollar would help “deliver more balanced growth.”