Global Market Cap Hits $50 Trillion For The First Time Ever As All Eyes Turn To Trump
Tax Plan
by Tyler Durden
After two days of back to back triple digit gains in the Dow for the first time since
the election, overnight the torrid rally has faded, with European shares and U.S. stock
futures little changed ahead of Trump's big unveil of his much anticipated tax cut plan
as investors seek new impetus for a flagging relief rally. And, if as some traders expect,
the rally is likely to be reignited no matter what Trump announces today (although a less
hyperbolic plan may in fact be more favorable for risk, as it makes Trump's plan more likely
instead of being shot down by Congress).
Despite the tapering of euphoria, world stocks hit another all time high on the back of strong
earnings and the realization that whatever Trump says, the S&P - less than 1% from all
time highs - will likely hit a new record. the MSCI world equity index, which tracks
shares in 46 countries, was up 0.1% to a fresh record high. It is up nearly 2% this week
and 8.35% since the start of the year. As Bloomberg's David Ingles charts, the market
cap of all stocks in the index, and thus the world, has just surpassed $50 trillion for
the first time ever.
"On top of (the French election result) we have had a very decent set of corporate earnings
in the U.S. and that helped push the market further along the same direction," said Investec
economist Philip Shaw. "I am unsure how further along we really are on the tax cutting agenda,
but it is certainly not doing market sentiment any harm," he added.
Further details on President Trump's tax cutting plans are expected to be announced later on
Wednesday, potentially reviving reflation bets. The threat of a U.S. government shutdown
this weekend also receded after Trump backed away from demanding Congress include funding
for his planned border wall with Mexico in a spending bill.
The dollar rebounded modestly for a second day after plunging in the past week to lows
not seen since November, gaining against most group-of-10 currencies even as the WTI slide
continues, with crude languishing below $50 a barrel after a report on U.S. supplies.
European stocks halted a five-day advance that had taken them to the highest since 2015
as earnings painted a mixed picture on growth.
According to Bloomberg, investors are waiting to see if Trump�s conciliatory tone on the
border wall could help avert a government shutdown even as most members of the Congress
are in the dark about the $1.1 trillion spending bill. Policy reviews by the Japanese and European
Central Bank may also set the tone for rest of the week.
European shares pulled back slightly from 20-month highs as some disappointing corporate
results weighed on the market but Asian stocks powered ahead. The Stoxx Europe 600 Index
was little changed, after a five-day rally to the highest since August 2015.
Japan�s Topix index rose 1.2 percent, climbing for a fifth straight day for the longest winning
streak this year. Futures on the S&P 500 Index were flat after the underlying gauge climbed
0.6 percent on Tuesday, to within 10 points of its closing record.
The early FX price action this morning has been in the EUR, as the market has faded the
story out late yesterday that the ECB are considering signalling a tweak in their monetary
policy stance in the wake of the Macron first round victory at the weekend. This sounds
premature to say the least, and alongside this, we have seen Draghi and Co curbing some
of the hawkish sentiment in response to their last meeting. The recovery EU wide is a little
better than fragile, but as the Fed have been struggling to do in their communication to
the market, the ECB now face a similar task.
The slew of positive news pushed the Nasdaq composite to a record high on Tuesday while
the Dow and S&P 500 brushed against recent peaks.
Against a strengthening dollar, the euro held on to the bulk of the gains made earlier this
week; it fell 0.13 percent to $1.0911, but is still up 1.72 percent from Friday's close.
U.S. Treasury yields, meanwhile, rose above 2.30 percent for the first time in two weeks.
"U.S. bond yields have broken higher without the support of commodity prices which is one
of the clearest signs that the Trump trade is back," Morgan Stanley analysts said in
a note. Euro zone government bond yields nudged up ahead of Trump's keenly anticipated tax
announcement.
Oil prices resumed their downward trend on Wednesday as data showed a rise in U.S. crude
inventories and record supplies in the rest of the world cast doubt on OPEC's ability
to cut supplies and tighten the market.
Economic data include revision of retail sales. Procter & Gamble, PepsiCo are among companies
scheduled to publish results. Alphabet, Microsoft, Amazon.com, Twitter, Intel, Barclays, Bayer
AG and Total SA are among major companies releasing results later this week. The Bank
of Japan is widely expected to keep the settings on its monetary easing program unchanged at
the end of a two-day policy meeting on Thursday. Though inflation remains well below the central
bank�s 2 percent target, it�s ticking up. The ECB sets monetary policy later that
same day. With officials indicating little chance of a policy change, the focus will
be on any signals from President Mario Draghi that the central bank is debating an exit
from its extraordinary stimulus.
Market Snapshot
S&P 500 futures down less than 0.1% to 2,384.00 STOXX Europe 600 unchanged at 386.90
MXAP up 0.5% to 149.55 MXAPJ up 0.3% to 487.86
Nikkei up 1.1% to 19,289.43 Topix up 1.2% to 1,537.41
Hang Seng Index up 0.5% to 24,578.43 Shanghai Composite up 0.2% to 3,140.85
Sensex up 0.7% to 30,149.50 Australia S&P/ASX 200 up 0.7% to 5,912.04
Kospi up 0.5% to 2,207.84 German 10Y yield fell 1.0 bps to 0.368%
Euro down 0.2% to 1.0910 per US$ Brent Futures down 0.04% to $52.08/bbl
Italian 10Y yield rose 8.4 bps to 1.972% Spanish 10Y yield rose 1.1 bps to 1.686%
Gold spot up 0.1% to $1,265.84 U.S. Dollar Index up 0.2% to 98.98
Top Headline News from Bloomberg
President Donald Trump�s expected call to slash the corporate tax rate to 15 percent
-- a number that many economists say would boost the deficit so much that the cut would
be short-lived -- may be less about policy and more about deal-making
The roll-out of legislation this week that would rip up much of the Dodd-Frank Act marks
a pivotal moment for Republicans� efforts to overhaul post-crisis financial rules
Credit Suisse Chief Executive Officer Tidjane Thiam is bowing to investor pressure to keep
the bank�s biggest profit generator and instead will bolster capital by selling stock
in a rights offer KKR & Co. offered to buy a controlling stake
in Hitachi Kokusai Electric Inc., the chip system-making unit of Hitachi Ltd., in a bid
that values the target at $2.3 billion BHP Billiton Ltd. said it may resurrect the
sale of its under-performing Fayetteville shale gas assets in Arkansas a little more
than two weeks after billionaire Paul Singer proposed spinning off the mining company�s
U.S. petroleum division China Southern Airlines Co. said it plans
to buy 20 widebody aircraft from Airbus SE in a deal worth about $6 billion, according
to a filing to the Hong Kong stock exchange Wednesday
KKR to Acquire Hitachi Kokusai in Deal Valued at $2.3b
IQiyi, Netflix Reach Content Cooperation Agreement Uber to Question Alphabet�s Larry Page in
Robocar Case Bayer-Monsanto Deal Needs EU Scrutiny, NRW
Minister Tells RP Shanghai to Develop �Water Town� Next
to Disneyland, Zone Says Asia equity markets maintained the positive
momentum from their counterparts in US, where the DJIA outperformed on strong earnings and
the NASDAQ Comp. closed over 6,000 for the first time ever. ASX 200 (+0.8%) gained on
return from holiday, while Nikkei 225 (+1.1%) benefitted after the JPY weakened against
its major counterparts. The Hang Seng (+0.3%) and Shanghai Comp. (+0.2%) also conformed
to the upside after the PBoC continued its liquidity injections. Finally, 10yr JGBs were
lower with demand dampened amid the broad-based heightened risk appetite and as the BoJ kick-started
its 2-day policy meeting in which the bank is widely expected to remain on hold, while
there was also notable underperformance observed in the super long end.
PBoC injected CNY 40bIn in 7-day reverse repos, CNY 20bIn in 14-day reverse repos and CNY
20bIn in 28-day reverse repos.
Top Asian News
China�s Homemade Aircraft Carrier Is Second in Xi�s Fleet
China Merchants Seeks to Overtake UBS in Asia With Offshore Push
China Market Strains Worsen as AAA Rated Vanke Scraps Bond Sale
ICRA Sees FY18 Foreign Flows Into Indian Debt Capped at $5- $10b
China Eastern Said in Cargo Stake Sale Talks With Private Firms
Huarong Investment Risks in Spotlight After Glaucus Report
Hyundai Motor Counts on SUV, Genesis Brand to Revive Profits
Korean Peninsula on Brink of War Provoked From Outside: Russia
European bourses fail to find any firm direction with equities trading somewhat mixed yet again.
Earning updates are yet again at the forefront of investors' minds, with Credit Suisse outperforming
in the SMI this morning after announcing profit rose above analyst estimates, additionally
the Swiss bank noted that they will raise USD 4bIn in a rights issues. Elsewhere, luxury
names have been lifted after Kering stated that their organic growth were significantly
ahead of expectations. Credit markets have found some support following yesterday's risk
sentiment as the bund has seen a slow grind higher since the cash open, benefiting from
month-end extension buying needs.
Top European News
Santander�s Brazil Patience Pays off as Rebound Lifts Profit
Kering Shares Surge After Gucci�s Strongest Growth in 20 Years
Standard Chartered Profit Soars as Bank Overhaul Gains Traction
Daimler Raises Earnings Forecast as Spending Pressure Mounts
HSBC, RBS Saudi Ventures in Talks to Form $78 Billion Lender
BHP Considers U.S. Shale Asset Sale After Activist Call
Handelsbanken�s Capital Supremacy Fails to Charm Shareholders
Telia Sees Lower Uzbek Fine of $1 Billion as Sales Top Views
SEB Sees Riksbank Move After �Shock� Sweden Manufacturing Data
De Benedetti Bets on Media as Italy Business Clans Look to Sell
In currencies, the Bloomberg Dollar Spot Index increased 0.2%, climbing for a second day
after a 0.5 percent drop on Monday. The yen slipped 0.1 percent to 111.24 per dollar,
after dropping 1.2 percent on Tuesday. The euro lost 0.2 percent to $1.0903, after four
straight days of gains. The early price action this morning has been in the EUR, as the market
has faded the story out late yesterday that the ECB are considering signalling a tweak
in their monetary policy stance in the wake of the Macron first round victory at the weekend.
This sounds premature to say the least, and alongside this, we have seen Draghi and Co
curbing some of the hawkish sentiment in response to their last meeting. The recovery EU wide
is a little better than fragile, but as the Fed have been struggling to do in their communication
to the market, the ECB now face a similar task. So the 1.0950 test was inevitable given
the headline driven market, but EUR/USD has since tempered this with a move back to 1.0900,
while EUR/GBP � traditionally bid into month end � is also restrained through 0.8500
� but largely down to Cable resilience ahead of 1.2750, but now seemingly 1.2800 (1.2805
the low this morning). For EUR/USD, 1.0850-30 looks strong in the meantime. USD/JPY has
also slipped back a little, and as we noted yesterday, sellers aplenty in the 111.00-112.00
area. We suspect a large chunk of the upside is down to the hopes and expectations of credible
tax plans to be 'outlined' in an announcement later today, so the risk here is that the
market is (again?) disappointed. EUR/JPY has also relented given the above move, and after
failing to touch on 122.00, we are back in the lower 121.00's.
In commodities, gold struggled with reclaiming USD1270 yesterday, and we have since slipped
back into the mid USD1260's as the recovery in the USD index allied with a modest recovery
in risk assets put further pressure on precious metals. Silver has also given up ground, and
has dipped into the USD17.50's. Oil prices back in focus after we slipped back under
USD50.00 in WTI, resuming its decline and losing 0.2% to $49.45 per barrel, after halting
a six-day selloff on Tuesday. . OPEC talks now key as Oil bulls need further encouragement
on an extension to the output cuts. The major producers all seem broadly open to the idea,
most of all Saudi Arabia as ongoing comments suggest. Key EIA report today with speculation
inventory will contract. Base metals all following the risk mood, with ranges tight ahead of
Trump announcement later today. Copper buoyed but struggles at USD2.60.
It�s a very quiet day ahead in terms of data. Over in Europe French consumer confidence
for April is the only number of note and is expected to be unchanged at 100, and there�s
nothing of note to watch in the US. However earnings season continues with Proctor & Gamble
and Boeing due to report today among other names. Away from data, we will see UK PM Theresa
May host EC President Juncker and EU�s Brexit negotiator Michal Barnier today
US Event Calendar
DB's Jim Reid concludes the overnight wrap
So on day 97 of his Presidency, today is all about Mr Trump's tax plans of which the eventual
success (or lack of it) will likely define the economic landscape of his administration.
The WSJ last night reaffirmed that Mr Trump wants to slash corporate tax including on
pass through businesses. He is also planning a tax break for child care expenses. There
was also talk of a territorial tax for companies where they would pay little or no tax on future
foreign earnings. Bloomberg also report that a repatriation tax of 10% is planned on the
estimated $2.6tn of stockpiled offshore earnings. Anyway whatever we hear today it will still
have to go through legislative approval and there will a lot of talk about how tough that
will be if it's not revenue neutral.
Staying with US politics there were signs yesterday that a US government shutdown may
end up being averted as President Trump showed signs of easing up on his demands for the
immediate funding of the border wall. So far the spending plan needed to keep agencies
running till September has been kept quiet ahead of this Friday�s deadline, but Trump�s
willingness to push back funding the wall to later this year could be a sign that he
would be ready to sign the spending bill.
Ahead of the big day in Washington, sentiment across global markets remained positive yesterday
following the relief rally on Monday. European equities ticked up on the day (STOXX +0.2%)
while the Eurozone Banks index gained by +0.6%. The DAX and CAC posted small gains of +0.1%
and +0.2%. US equity markets maintained momentum with the S&P gaining +0.6%, led by Materials
(+1.4%) and Financials (+1.2%). Strong bluechip earnings helping. The NASDAQ also hit a new
all time high, breaking the 6,000 mark for the first time after gaining +0.7% on the
day. Interestingly this was 17 years after first hitting 5,000 although without checking
one wonders how many constituents were in the index back then that are still there today.
We note that having taken 17 years to fill in this last 1,000 point gap, it only took
49 days to move from 4,000 to 5,000 back in 2000. Another stat is that the index is now
up around 4.7 times from its lows in March 2009. Impressive and all these stats are a
reminder that timing is everything in investing!
Elsewhere risk-on continued in credit. In Europe we saw Main and Crossover spread tighten
by -2bps and -8bps respectively, while Senior and Sub financials spreads tightened by -5bps
and -11bps on the day. Over in the US we saw similar moves tighter as CDX IG and HY tightened
by -2bps and -7bps respectively. We saw a broad based sell off in government bond markets
with yields rising across all maturities for US treasuries (2Y: +4bps; 10Y: +6bps) and
Bunds (2Y: +2bps; 10Y: +5bps) . Yields for 10Y OATs and BTPs yields also rose on the
day by +7bps and +9bps respectively, with the 10Y OAT-Bund spread widening by +2bps.
In currency markets we saw the dollar (-0.3%) weaken for the second day in a row while the
Euro gained +1.0%. Sterling also gained +0.5% to reach its highest level this year. Moves
over in commodity markets were fairly muted at both ends of the risk spectrum, with WTI
and Gold mostly flat. The Asian session is also relatively quiet with the positive mood
of the last few days continuing. The Nikkei is 0.7% higher as the BoJ start their 2-day
meeting, the Hang Seng +0.6% and the Shanghai Comp +0.35%. Gold, the Dollar, Oil and Treasuries
haven't moved much in the overnight session.
Looking now at some of the data out yesterday. In Europe, the ECB Q1 Bank Lending Survey
was broadly positive as credit standards loosened across all three major categories. Loans to
enterprises dipped back into easing territory (-2%) after having ticked up by +5% in Q4
2016. The net easing was roughly in line with the expected change in standards as reported
in the previous survey, and banks now expect a net tightening of lending standards for
enterprises in Q2 (2%). Standards for consumer credit and lending to households also loosened
in Q1 (-7% and -5% respectively). Despite loose lending conditions credit demand growth
from enterprises is slowing down: net 6% of banks reported an increase in loan demand
from enterprises in Q1 but this was well below the 11% that expected an increase (as reported
in the previous survey) and also less than the 18% reporting an increase in loan demand
in Q4 2016. Banks however expect net loan demand from enterprises to accelerate in Q2
2017 (12%).
Elsewhere in Europe we also got French manufacturing confidence numbers for April that rose more
than expected (108 vs. 105 expected; 104 previous) while business confidence was flat on the
month (104) as expected. In the UK the PSNB numbers (including banks) for March were reported
well above expectations at GBP 4.4bn (vs. 1.5bn expected).
Over in the US we saw a large number of housing market indicators which were mostly positive.
The FHFA house price index rose by +0.8% mom in February (vs. 0.4% expected) while new
home sales unexpectedly rose to 621k (vs. 584k expected; 592k previous). In terms of
softer data, the consumer board consumer confidence indicator for April fell more than expected
to 120.3 (vs. 122.5 expected; 125.6 previous). The Richmond Fed manufacturing survey also
fell on the month but less so than expected (20 vs. 16 expected; 22 previous). It�s
a very quiet day ahead in terms of data. Over in Europe French consumer confidence for April
is the only number of note and is expected to be unchanged at 100, and there�s nothing
of note to watch in the US. However earnings season continues with Proctor & Gamble and
Boeing due to report today among other names. Away from data, we will see UK PM Theresa
May host EC President Juncker and EU�s Brexit negotiator Michal Barnier today.
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