As we approach the end of Trump’s third week in the White House, we are still none the wiser on his fiscal stimulus package which he promises will ‘Make America Great Again’. As long as this uncertainty remains, we expect the volatility to persist. Yesterday we had a prime example of this when he announced that “something phenomenal on tax in the next two to three weeks”. This ambiguous statement, which offered no other details was enough to send US stocks to record highs and also push the dollar higher. If what Trump has stated in the past is to be believed then his tax reforms will be the most ambitious since the Reagan era.
If we turn the clock back to the 1980’s when Reagan used a similar supply side approach, where his administration cut taxes in the hope that revenue losses would be offset by increased investment and spending, however Reagan later had to reverse these tax cuts and in the aftermath saw the US enter a recession in the 1990s. However for now markets are more buoyed on what lies ahead for the US. In the meantime, markets will turn their attention to the two day summit between President Trump and Japanese Prime Minister Shinzo Abe which will commence later today.
In the Eurozone political uncertainty continues to dominate sentiment. Marine Le Pen, leader of the far-right Front National is gaining traction in the polls with scandal hit Fillon dropping in polls. While still considered an outsider she is invoking Brexit and Donald Trump in an effort to maintain a nationalistic trend in global politics. If we see her continue to gain ground in the polls, expect to see this weigh on the euro.
In the UK this morning we have manufacturing production and trade figures due at 9:30. The trade figures is one which markets will be monitoring going forward as Theresa May looks to offset their reliance on the EU, who account for roughly 50% of trade.