US Tax Reform and Brexit in the spotlight on Tuesday

The Dow Jones hit another record high in the previous session, as celebrations over the passing of the US tax reform bill continued while the pound plummets on news that there was no Brexit deal yet

The Dow Jones hit another record high in the previous session, as celebrations over the passing of the US tax reform bill continued. Meanwhile declines in shares of technology stocks kept the S&P 500 and the Nasdaq under pressure, with the former ending in the red and the latter finishing 1% lower. Investors also scaled back on traditional safe haven assets such as gold and US Treasuries, whilst moving into the dollar. 

The after glow of the US tax reform bill could be in danger of disappearing all to quickly. Doubts are starting to surface as to what extent the tax cuts can actually boost an already strong US economy, which is growing at 3.3% and close to full employment. For the time being stocks are prepared to give tax reform the benefit of the doubt, some economic benefit is going to come from these long-awaited changes, could the benefits just be a little less than what investors were dreaming of? 

The dollar rallied hard across most of the previous session, but as with the Dow Jones, it too also ended the day off session highs, which could be a nod towards the doubts which are surfacing. Futures are however pointing to a stronger start today. 

Pound lower on No deal yet Brexit 

The previous session saw the pound plummet on news that there was no Brexit deal yet. Early on Monday both the pound and the FTSE rose on reports that the UK and the EU were on the verge of a Brexit divorce agreement. However, these reports proved to be premature. Theresa May and Jucker confirmed there was still work to be done, which sent sterling lower against both the euro and the dollar. The Irish border issue is proving to be a tough nut to crack and talks will continue this week. Ireland is intent on leaving the EU with the same status as the rest of the UK. The fact the pound has been able to keep losses limited means investors are still optimistic that a deal will be reached in the next two weeks. 

Will November’s UK Service sector impress like October’s?  

The pound will remain in focus as service sector PMI data is due to be released this morning. The forward-looking data will give investors an insight as to the health of the dominant service sector, which accounts for over 80% of UK economic activity. The sector is expected to show a slight slowdown in activity, compared to October. However, October was a particularly impressive month, significantly beating analyst’s expectations. 

Should the reading today impress on a similar level, the pound could recoup some losses from the previous session, potentially pulling $1.35 back into view. 

Will Chinese data and a weaker pound support the FTSE on the open? 

In the meantime, a weaker pound and strong Chinese data released over night could offer the FTSE support on the open. Chinese service sector activity picked up to a three-month high in November, suggesting that any expected slowdown in the broader economy could be gradual. This news could boost the heavily weighted miners on the FTSE as trading kicks off this morning. 

Bitcoin futures imminently The race is on between the CBOE, CME and Nasdaq to start trading bitcoin futures. The CBOE has confirmed that t will begin trading bitcoin futures on Sunday evening, making Monday 11th December its first full trading day. 

This beats the CME which had already announced the 18th December as its first bitcoin futures session. Meanwhile the Nasdaq is planning on introducing the bitcoin futures in the first half of next year. The involvement of these big names is helping provide legitimacy to the virtual currency. 

Bitcoin futures will mean that short positions will also be available. This raises the question as to whether futures trading could actually increase the volatility level of the bitcoin. Today bitcoin hit another record at $11.665

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