Trump tax cut talk and China data sparks market rally

PUBLISHED : Saturday, 11 February, 2017, 6:39am
UPDATED : Saturday, 11 February, 2017, 6:39am

A key index of global equity markets rose to a 20-month high on Friday, with Wall Street shares hitting records for a second straight day, as investors continued to bask in the afterglow of US President Donald Trump’s promise of tax reform.

The dollar hovered near an 11-day high against a basket of major rivals, as Trump and Japanese Prime Minister Shinzo Abe opened two days of talks looking to cement a decades-old alliance.

The MSCI’s world index, which tracks shares in 46 countries, rose after evidence of Chinese growth lifted shares in Asia and Europe. Strength on Wall Street boosted the index further and it was up 0.41 per cent to the highest since May 2015.

Trump’s promise of a “phenomenal” tax plan helped reignite a post-election rally in stocks, which had stalled in recent weeks on concerns over his protectionist stand and the lack of clarity on policy reforms.

“Investors were worried that the administration may have gotten off track and was pursuing other items,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

“Tax cuts have gotten put back on the front burner,” Forrest said, adding, “We are looking for gains in the economy at large from this, not just (earnings per share) gains in stocks.”

The Dow Jones Industrial Average rose 96.97 points, or 0.48 per cent, to finish at 20,269.37, the S&P 500 gained 8.23 points, or 0.36 per cent, to close at 2,316.10 and the Nasdaq Composite added 18.95 points, or 0.33 per cent, to end at 5,734.13.

The ongoing corporate earnings season added to the upbeat mood. Activision Blizzard’s shares surged nearly 19 per cent to give the biggest boost to the S&P 500 and the Nasdaq, after the videogame publisher reported higher-than-expected revenue on Thursday.

In Europe, shares edged higher, ending the week in positive territory thanks to corporate earnings and robust basic resources stocks.

Europe’s broad FTSEurofirst 300 index closed up 0.15 per cent at 1,448.70.

The US dollar held its recent gains against a basket of major rivals as comments from Trump during a news conference with the Japanese Prime Minister did little to shake optimism his administration would overhaul tax policy soon.

“The underlying bigger story in the last 24 hours is that Trump has put the reflation trade back on the front foot by talking about a tremendous tax programme,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

The dollar index, which measures the greenback against six major rivals, was up 0.12 per cent to 100.77.

In bond markets, US Treasury debt yields edged higher, boosted by solid monthly import price data as investors acted largely on technical data.

Technical positioning in limited trading volume shifted markets through the day as a weak reading on US consumer confidence forced traders to re-examine the market’s momentum.

Benchmark 10-year U.S. Treasury note yields were down 3/32 in price to yield 2.406 per cent, up from a yield of 2.397, late on Thursday.

OPEC data show more than 90 pc compliance with supply cut

Oil prices rose after reports that OPEC members delivered more than 90 per cent of the output cuts they pledged in a deal that took effect in January.

Brent crude settled up US$1.07, or 1.92 per cent, at US$56.70 a barrel, and US crude settled up 86 cents, or 1.62 per cent, at US$53.86.