US Equities Set Pace, While Greenback Consolidates Inside Monday’s Ranges

US tax changes appear to be providing fuel for the year-end advance that has carried the major indices to new record highs. The coattails are a bit short, and while global equity markets are firm, they are unable to match the strength of US. Despite a heavier tone in Japan, Taiwan, and Korea, the MSCI Asia Pacific Index edged higher for the second session but remains around one percent below the record highs set in late November.

The Dow Jones Stoxx 600 is flat near midday in London. It is about two percent below the high for the two-year set in early November and about five percent below 2015 high. This European benchmark is up an 8.65% year-to-date. For dollar-based investors, the index is up 22% on an unhedged basis.  The S&P 500 is up 20% coming into today’s session, and the Dow Jones Industrials is up 25%.

The US dollar is trading within yesterday’s ranges amid light news. The focus in the US is on the tax changes which the House will likely vote this afternoon. The Senate vote could come later today or early tomorrow. Toward the end of last week, we had suggested the risks that the bill is defeated were greater than many investors seemed to appreciate.  

Apparently, at the last minute, a provision was added that gives about a quarter of the Republican Senators a new tax cut through their real estate shell companies. It was not in the original bill that was passed by the Senate on December 1. Reports suggest that the Chair of the Senate Finance Committee that drafted the bill included it in the final measure. It appears that the measure will ensure passage.  

Sterling is the weakest of the major currencies today. Brexit is the driver. Specifically, UK still seems to be in collective denial. It hopes to draw the benefits of being in a single market without actually being in it. Specifically, the EU’s chief negotiator ruled out a carve-out for UK financial services post-Brexit. When the UK leaves the EU, its financial services will not enjoy a passport arrangement that will allow it to provide financial services to other EU members on the same terms it currently enjoys.