Morning brief for April 27
The much-awaited Trump’s tax plan was meager on detail and long on giveaways to the biggest corporations and billionaires. US President proposed slashing taxes for businesses to 15% from the current 35% for public corporations and 39.6% for small businesses. So, the plan matched up closely with the promises Trump made during his election campaign but failed to inspire investors who waited for more specifics on how it would be paid for without increasing already huge deficit.
The US Congress inched towards a deal to fund Trump’s administration through September but was preparing to extend a Friday deadline in order to ram home negotiations and avoid a government shutdown. Any breakdown in talks to government shutdown will result in a market’s turmoil.
Donald Trump scrambling to show progress on his agenda before termination of his 100th day in office claimed that he is considering a swifter renegotiation of the NAFTA deal. The Mexican peso and CAD recovered after Trump’s administration promised not to terminate NAFTA this time.
The euro rallied to 1.0905 since Monday after risks of a victory for anti-EU presidential candidate Marine Le Pen recede. The European Central Bank is scheduled to deliver its monetary policy statement at 3:30 pm MT time. No change in policy is unanimously expected. The fact that a Le Pen – Melenchon scenario was averted in the French election, and pro-EU centrist Macron is poised to win in the second round, is positive news for the ECB policymakers. Economic data for the Eurozone is also at a six-year high, but a disappointing inflation headline that we received in March may not inspire the ECB to change its present monetary policy settings at today’s meeting. An over-secretive Draghi at the press conference could potentially hamper the euro gains.
The yen remained almost intact after the Bank of Japan kept its monetary policy unchanged with short-term interest rate target at -0.1 and a commitment to guide long-term bond yields around zero percent. The BoJ noted that Japan’s economy has expanded. The word expansion in describing the state of the continuously anemic economy can be interpreted as a policymakers’ conviction that the recovery is gaining momentum (upgraded assessment of Japan’s economic outlook). The BoJ officials slightly cut their inflation forecast for this fiscal year in a quarterly review of their projections. The 2 percent target will likely be hit only in 2018. USD/JPY is hovering near 111.30. A break of this level will allow us to target a move towards 112.20.
The Canadian dollar is at the bottom of the G10 leader board today. Yesterday we got Canada’s retail sales releases which had a softer than expected outcome. Another headwind was the risk for the termination of the NAFTA deal that finally receded after Trump’s commitment not to end it now. USD/CAD is trading at 1.4555. The pair has a room for a further extension towards 1.4710, 1.4835 if not stopped by 200-, 100-day MAs.
Aussie recouped some of its yesterday’s losses in Tokyo morning haven risen to 0.7470 from 0.7450. An upward momentum is not strong enough; it might end around 0.7520.
Kiwi soared to 0.6910 in the morning after touching 0.6870 (the lowest level in last 4 months). It has a room for extension towards the immediate resistance at 0.6975.