As the week wore on, concerns over the Republican party in the United States of America (US) ability to push through tax cuts started to weigh on markets. This was further compounded by a series of disappointing corporate results in Europe, including from Telecom Italia and Siemens, which led to profit taking in the second half of the week, with European stocks suffering their worst day in more than 4 months on Thursday.
Over the week, by Friday 12pm London time, the Standard & Poor’s (S&P) 500 equity index was down 0.1%, whilst the Nasdaq technology index fell 0.2%. European stocks suffered much more, with the EuroStoxx 50 falling 2.2% and the UK’s FTSE All Share down 1.4%. The Japanese Topix index finished up 0.4%, however, that belies a great deal of stock volatility, with an intraday swing of 3.6% on Thursday.
Emerging markets finished up 0.7%, although there was wide dispersion amongst the constituent parts with the Chinese Shanghai Composite finishing up 1.8%, whilst the Indian Sensex was down 1.1%, and the Brazilian Ibovespa down 1.3%. The Australian S&P/ASX 200 finished up 1.7%, boosted by strengthening commodity prices.
At the beginning of the week, investors were greeted with the surprise news that an anti-corruption drive in Saudi Arabia had led to the arrest over the weekend of at least 11 princes, and dozens of senior officials and prominent businessmen. These increased tensions helped to push the oil price still higher, despite no disruption to the oil supply from the country. Brent crude has now gained 16% over one month, finally breaking out of its recent trading range.
Doubts over US tax cuts re-emerge
Any misplaced optimism over US President Trump’s ability to push through tax cuts started to evaporate mid-way through the week, as the Senate finance committee’s plan looked materially different to the rival bill being pushed through the House of Representatives. This reflects self-imposed guidelines by the Republicans to avoid running any extra deficits beyond the next 10 years to meet its own internal rules and allow the legislation to be passed in the Senate without any support from the Democratic party. One of the key alterations was a postponement of the corporate tax cut from 35% to 20% until 2019, to save money but this inevitably disappointed markets.
Safe-haven assets not in vogue despite skittishness
Despite the nervousness in markets towards the end of the week, there was not a rush to safe-haven assets either. Yields on US Treasuries, which move inversely to price, rose slightly, with the 10-year US Treasury trading at 2.37%, UK Gilts 1.33%, and German Bunds 0.4%. Although gold rose 1.2% over the week, now trading at $1,284.
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