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The Guardian - UK
The Guardian - UK
Politics
Graeme Wearden

US stock market hits record high after Trump tax bill success - as it happened

The New York Stock Exchange.
The New York Stock Exchange. Photograph: Mark Lennihan/AP

So, not the most convincing rally we’ve ever seen.

And who can blame traders? There’s plenty of reasons to be cautious, frankly - the stalling Brexit talks, the Michael Flynn situation, and the ongoing North Korean tensions for starters.

Plus the fact that stock valuations do look a little high.....

So we’ll find out tomorrow whether the Trump bump continues, or if markets take a breather. Until then, goodnight, and thanks for reading. GW

Dow closes at trecord high

NEWSFLASH! America’s Dow Jones industrial average has closed at a new record high, thanks to optimism over Donald Trump’s tax reforms.

But....the rally did threaten to fizzle out. In the end, the Dow only gained around 58 points to 24,290 - a gain of 0.25%.

That takes the blue-chip index to a new closing peak, extending the rally sine Trump won the US presidential election 13 months ago.

Dow Jones industrial average
The Dow Jones industrial average Photograph: Bloomberg TV

Tech stocks had a bad day, dragging the Nasdaq down. The S&P 500 also lost its early sparkle, and closed a little lower.

Traders may have decided to ‘sell the news’ and bank profits, especially with other issues swirling over the White House....

The final seconds of today’s trading day
The final seconds of today’s trading day Photograph: Bloomberg TV

Now this wasn’t in the script. With 15 minutes to go, the rally is running out of puff.

The S&P 500 is now pretty-much flat, and the Dow is shedding some of its gains too - now up just 0.3%.

The tech selloff seems to be responsible.

Technology stocks are still refusing to join the rally.

The tech-focused Nasdaq index is down almost 1% today, partly due to big names like PayPal (down 5.8%), Adobe (down 5.6%) and NVIDIA (down 5.1%).

The chatter on Wall Street is that investors are moving out of tech, and into financial stocks, consumer-focused companies and industrial companies today.

Traders working on the floor of the New York Stock Exchange today.
Traders working on the floor of the New York Stock Exchange today. Photograph: Lucas Jackson/Reuters

With around 90 minutes trading to go, the Dow Jones industrial average is toying with a new closing high.

The Dow is up 160 points at 24,391, as traders keep giving the tax reforms push a thumbs-up (despite the reservations we’ve already flagged up).

Disney is the top riser, up almost 5%. That’s due to reports that talks have resumed with Rupert Murdoch’s 21st Century Fox to buy some of Fox’s entertainment assets.

Boeing are next on the Dow risers chart, up 3%, followed by chemicals giant DowDuPont (+2.6%) and JPMorgan Chase (+2.5%).

Our financial editor, Nils Pratley, isn’t terribly impressed by today’s stock market rally.

It’s all so terribly short term, he writes...

Once the sugar rush fades, expect investors question the long-term economic benefits of cutting corporate taxes. If investors truly believed that the US economy was now set on a course towards higher growth, you would expect a reaction in the market for US government debt. Investors might start to predict higher inflation, for example.

But that is not happening. Instead, short-dated and long-dated US Treasury stocks are trading at very similar yields, which traditionally signals economic trouble ahead. Funnily enough, Trump never tweets about that.

Here’s Nils’ column:

The US stock market rally could head even higher, if the two houses of Congress can agree a final tax bill.

Mike Bell of JP Morgan believes the tax trade has more legs, adding (via the FT):

We estimate that the market is only pricing in about a 50% probability of tax cuts and that if a tax plan is finalised this would push US equities higher.

The Dow Jones continues to enjoy a good day, up around 200 points at 24,430.

Financial stocks are still leading the charge, up 1.7%.

But tech stocks aren’t coming to the party. Facebook and Google are both down 0.5% while Microsoft has shed 2%.

The Trump Bump: shares have rallied strongly in the last year
The Trump Bump: shares have rallied strongly in the last year

European stock markets have closed higher tonight, led by Germany:

The eurozone’s finance ministers have elected a new leader - Portugal’s Mario Centeno.

So his predecessor Jeroen Dijsselbloem really did give the game away earlier when he described Centeno as his successor, before the vote had even taken place.....

It’s official - no Brexit breakthrough today.

Updated

The pound is now dropping back, after DUP leader (and Theresa May ally) Arlene Foster warned that her party wouldn’t accept any regulatory divergence between Northern Ireland and the rest of the UK.

That could be a spanner in the works for May’s Brexit breakthrough.....

It has nudged sterling back below $1.35, and wiping out most of today’s gains.

Updated

Wall Street investors are hoping that a final tax deal can be done soon (ironing out differences between the Senate and the House of Representatives).

Randy Frederick, vice president of trading and derivatives for Charles Schwab, explains (via Marketwatch):

“Getting the tax plan done will still be a challenge, but it doesn’t seem as impossible as it once did, and now there’s optimism that it could happen before the end of the year, which means it could be made retroactive and change the liability for companies and individuals for this year as well as next, which would be a positive.

Summers: Tax reforms will kill thousands

Here’s a sobering thought. Former Treasury secretary Larry Summers has predicted that thousands of Americans will die early, if the tax changes approved by the Senate go through.

CNBC has the details:

About 10,000 Americans will die every year from lack of health coverage if the tax reform bill goes through as proposed, Larry Summers, the former Treasury secretary and White House economic advisor under Barack Obama, said Monday.

Citing studies on what happens to people who go from being insured to uninsured, Summers said the estimate is likely conservative.

“I think this bill is very dangerous,” he said on CNBC’s “Squawk Box” program.

“When people lose health insurance, they’re less likely to get preventive care, they’re more likely to defer health care they need, and ultimately they’re more likely to die.”

Eurozone finance ministers give Greece the thumbs-up

Reports are coming through that the Eurogroup has approved the policy package agreed over the weekend by Athens and its creditors.

The county’s leading daily, Kathimerini, says Euro group chairman, Jeroen Dijsselbloem, welcomed the deal ahead of the meeting telling the assembled media “it was exceptional” it had been agreed in time.

The deal paves the way to Greece receiving fresh rescue funds from its current and third international bailout pushing the country inexorably towards self-finance when the €86bn rescue programme officially expires next August.

Updated

Stocks are racing higher in New York, as traders cheer the US Senate’s tax vote.

The Dow Jones has now gained an impressive 300 points, or 1.2%, to 24,532. That shows that Wall Street is applauding the prospect of corporation tax being cut from 35% to around 20%.

Walt Disney is the biggest gainer, up 3.8% (readers should insert their own joke about the financial markets being a Mickey Mouse operation).

Aeroplane maker Boeing are up 3.3%, with financial stocks and basic materials companies also having a good day.

Before we get carried away, let’s remember that barely half of all Americans own stocks (either individual shares or through retirement accounts).

Inevitably, they will be the wealthier members of society -- who are also in the front line to benefit from Trump’s tax changes (as this charts showed).

Gallup reported earlier this year that stock ownership has contracted since the financial crisis, especially among younger and less-wealthy Americans.

But share ownership has held firm among Adults aged 65 and older and those with an annual household income of at least $100,000.

US stocks hit record highs

Boom! The Dow Jones industrial average has hit a fresh record high in early trading.

The Dow jumped by 244 points to 24,475, a gain of around 1%, as New York traders applaud the prospect of tax reform legislation hitting the statute book.

The S&P 500, which tracks a broader group of US companies, is also at record levels.

The open of Wall Street today

Arnaud Masset of Swissquote bank says corporate America approves of Trump’s efforts:

Tax reform is popular with US businesses. The proposed law could reduce corporate tax rates to 20% (compared to 35% currently) and cut individual taxes too.

Today, the honour of ringing the Wall Street opening bell goes to Groupon, the deals website....

Opening bell of Wall Street

There’s quite a festive mood on Wall Street today, partly thanks to the impressive Christmas tree outside the New York Stock Exchange.

A golden star tops the Christmas tree outside the New York Stock Exchange

New York traders should prepare for a lively opening, when trading begins on Wall Street in 30 minutes.

A fresh record high looks nailed on, following the Senate’s tax approval vote. Connor Campbell of SpreadEx explain:

The Dow Jones is set to strap a rocket to its back after the bell, with the futures pointing to a 220 point surge. That’d leave the Dow at – what else – a fresh all time high of around 24450, already making last Friday’s FBI-revelations inspired panic a distant memory.

The pound has now hit a six-month high against a basket of currencies.

Elsewhere in Brussels, eurozone finance ministers are gathering for a eurogroup meeting.

They’ll be electing their next president, to succeed Jeroen Dijsselbloem. Officially it’s a close contest, with four candidates throwing their caps into the ring:

Although, the chat may be out of the sac....

It could also be a big day for Greece, with the leftist-led government presenting the deal it has reached in ongoing bailout negotiations with creditor.

Athens officials hope for a warm reception from the euro group, marking the beginning of the end of international surveillance for debt-stricken Greece.

From Athens, Helena Smith reports:

With a compliance review completed in record time over the weekend, the Greek finance minister Euclid Tskakalotos will present the deal (referred to as staff level agreement) to euro area finance ministers today.

The policy package, a key part of the country’s third bailout programme review, must be approved by the euro group before another tranche of aid worth €5bn can be released to Greece. If rubber-stamped today – less than two months after talks began - the disbursement could be made in January. “Although a lot of the measures are sensitive the real news is that the agreement was concluded in record time,” said one insider. “It is recognised that we are committed to exiting the [bailout] programme.”

It’s not all plain sailing.

Under the deal, which covered issues ranging from energy and labour market reforms, bad loans and privatisations and tax measures, Greece will have to implement around 100 ‘prior actions’ or reforms by January. The demand that Athens presses ahead with more foreclosures – a necessary evil if banks are to deal with the highest non-performing loan ratio in the euro zone – is particularly sensitive. Many Greeks, unable to keep up with bank payments, fear they could lose their homes.

Prime minister Alexis Tsipras’ government is especially keen to wrap up the review (and negotiations more generally with creditors) so it can exit the €86bn bailout programme, the country’s third, next summer. Only one more bailout review remains and once that is concluded debt relief talks can begin. The government is betting on debt relief helping it win a fresh term in office (despite lagging drastically in the polls).

Updated

Here’s a neat chart, showing how morale in Britain’s construction and manufacturing sectors picked up in November.

Tomorrow we discover if the service sector also had a good month.

The pound has now hit a one-month high against the euro, at €1.1415, thanks to those reports of a deal over the Irish border.

Hamish Muress, currency analyst at OFX, says investors are hoping for a significant Brexit breakthrough:

“It is understood that Prime Minister Theresa May has conceded ground to the EU around the Irish border and the final divorce bill for leaving the EU, which have been sticking points for both sides for months.

Despite the fine details of a draft agreement unlikely to be resolved until next week, the pound will be buoyed by the news that, for the time being, it looks like the EU will vote in favour of progressing talks to the next phase.”

But.... there’s confusion over whether Britain is really offering “no divergence” on regulations, as some MEPs said, or simply “continued regulatory compliance”. The final decision will be crucial.

Updated

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Updated

The president is up, and predicting a Wall Street rally today:

Pound rallies on Brexit breakthrough hopes

Sterling is pushing higher against the euro and the US dollar, following reports that Britain and the EU are close to a breakthrough.

After a slow start, the pound is now up half a cent against the dollar at $1.352.

Against the euro, it’s gained three-quarters of a eurocent at €1.14.

It follows reports that Britain has made a key concession over the Irish border. According to MEPs, the UK has offered no divergence between Northern Ireland the Republic over single market and customs union rules.

Irish broadcaster RTE says it would have “far-reaching implications”.

But it’s not clear that Northern Ireland’s DUP party would accept it -- which is significant, as they’re currently propping up Theresa May’s government.

My colleague Andrew Sparrow is tracking all the action in his Politics Live blog:

How richest Americans will benefit most

The loudest complaint against Trump’s tax ‘reforms’ is that the richest Americans will benefit the most.

And yesterday, the bi-partisan Congressional Budget Office showed very clearly that this is true:

Updated

Economics professor Nouriel Roubini is concerned that the US budget deficit could spiral to $1 trillion by the end of the decade, thanks to Donald Trump’s tax shake-up.

He fears it will precede a squeeze on government spending, potentially hurting welfare spending.

Economics lecturer Stephen Kinsella of Ireland’s University of Limerick agrees that the fiscal axe will soon fall on US government spending.

Why US tax reforms aren't a done deal yet

A bit of work still needs to be done before Donald Trump can sign off a tax reform bill.

That’s because the Senate and the House of Representatives (America’s upper and lower chambers) have both passed different legislation. The two versions now need to be merged, starting today - creating an opportunity for lawmakers to raise objections.

Michael Hewson of CMC Markets says:

It is by no means a done deal given that the Senate bill is different to the one passed by Congress in November which means any final version is likely to be revised, and then passed by both houses, before being sent for signature by the President.

What is unlikely to change are the headline numbers, which means that we can expect to see the corporation tax rate number reduced substantially from its current 35% to as low as 20%.

After a stellar year, world stock markets are closing in on a new record -- $100 trillion!

Wall Street expected to hit record highs today

The New York Stock Exchange is seen reflected on an ornament hanging on a Christmas tree outside the exchange in New York
The New York Stock Exchange is seen reflected on an ornament hanging on a Christmas tree outside the exchange in New York Photograph: Mary Altaffer/AP

Over in New York, Wall Street traders will be waking up to predictions of another record-breaking open in four hours time.

The Dow Jones industrial average is forecast to jump by over 200 points, following the Senate’s approval of US tax reforms over the weekend.

It means the long rally since Trump’s shock election win will continue....

Barbara Kollmeyer of Marketwatch puts it:

The gains came as investors shifted their focus away from political tensions in Washington and cheered weekend news that Senate Republicans passed a sweeping overhaul of the U.S. tax code.....

Hopes that the Trump administration and Republicans would usher in a business-friendly tax overhaul have been a driver for the stock market’s record-setting streak over the past year. The House and Senate now must agree on a single tax bill before it can be sent to Trump to sign.

Blane Perrotton, managing director of the national surveyors Naismiths, says UK housebuilders are feeling more upbeat.

“After the Autumn Budget, developers feel like they have the Government behind them and that is further boosting confidence and activity levels.

“Residential development is certainly the most active it has been since before the Global Financial Crisis.

“On the frontline we’re seeing a huge amount of activity, especially among small and mid-sized developers, who are making the most of the vastly increased finance options available.

This jump in the UK’s construction PMI is a little surprising, says Max Jones of Lloyds Bank Commercial Banking.

Jones reckons confidence among builders is quite ‘brittle, adding:

“Anecdotal feedback indicates that margins are coming under pressure with competition increasing amid the ongoing economic uncertainty. Larger firms also feel caught in the middle between clients pushing for fixed-price contracts and investors hungry for fatter margins.

Construction bosses are also worried that the might struggle to find enough skilled labour after Brexit, Jones adds - although others are keen to invest in their UK workforce.

UK construction sector picked up in November

Breaking: Britain’s construction sector grew at its fastest rate in five months in November.

Markit’s latest PMI survey shows that housebuilding picked up last month, bringing some relief to Britain’s builders after an autumn slowdown.

That pushed the construction PMI up to 53.1, up from October’s 50.8. Any reading over 50 shows growth, so this is an encouraging signal.

UK construction PMI
UK construction PMI Photograph: Markit

Here are the key findings:

  • Residential work drives modest construction rebound in November
  • Commercial and civil engineering activity continue to decline
  • Business optimism picks up from October’s near five-year low

Tim Moore, Associate Director at IHS Markit, blames political uncertainty for the slowdown in commercial construction activity and civil engineering work:

“UK construction companies experienced a solid yet uneven improvement in business conditions during November. Once again, resilient house building growth helped to offset lower volumes of commercial work and civil engineering activity.

“Survey respondents noted that residential projects underpinned the rebound in total new order growth to its strongest since June, helped by strong demand fundamentals and a supportive policy backdrop.

“Construction firms reported that heightened economic and political uncertainty continued to hold back commercial development activity. The latest drop in civil engineering was linked to a recent lack of tender opportunities for infrastructure-related projects.

Updated

Trump’s push to cut America’s corporation from 35% to 20% could encourage US companies to repatriate some of their immense overseas cash piles.

Fortune Magazine says this is a victory for tech giants, who have lobbied hard on this issue:

Tech companies like Apple and Microsoft have for a long time balked at the 35% corporate tax the current tax code requires them to pay on worldwide profits returned to the U.S. To avoid paying, the companies have parked as much of their profit as possible in overseas subsidiaries in countries like Bermuda and Ireland, where tax rates are low.

The Big 5 tech companies–Apple, Alphabet, Amazon, Facebook, and Microsoft–currently have a combined $457 billion held in overseas subsidiaries. Apple holds more profits overseas than any other company, with Microsoft not far behind.

US overseas cash piles

More here: Big Tech’s Lobbying Splurge Is About To Pay Off With The Tax Vote

Europe’s stock markets are recovering from Friday’s shock news that former Trump advisor Michael Flynn had pled guilty to lying to the FBI.

Rebecca O’Keeffe, head of investment at interactive investor, explains:

“European markets are playing catch up after closing at the depths of the Friday market meltdown on Michael Flynn concerns and embracing the weekend’s senate tax bill success.

The pro-business tax cuts look set to boost US economic growth and have provided further impetus for US and global valuations.

Every sector of the FTSE 100 is up this morning.

FTSE 100 sectors
FTSE 100 sectors Photograph: Thomson Reuters

Multinational equipment rental firm Ashtead Group is leading the way, up 3.5%, followed by cruise company Carnival and plumbing and heating firm Ferguson.

Ashtead and Ferguson both have big operations in America, so would benefit if Trump’s tax reforms do deliver a growth burst.

All the major European stock markets are up this morning, after the US Senate approved the tax reform package over the weekend.

The German DAX is leading the charge, up over 1%, with Britain’s FTSE 100 and the French CAC close behind.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Hussein Sayed, chief market strategist at FXTM, says:

The U.S. Senate’s approval to pass the tax cut bill on Saturday overshadowed the continuing investigation into connections between U.S. President’s inner circle and Russia.

The US dollar has jumped by 0.5% against a basket of currencies this morning, reports Reuters.

The agenda: Markets welcome Trump tax breakthrough

The United States Capitol Building in Washington, DC.
The United States Capitol Building in Washington, DC. Photograph: REX/Shutterstock

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Stock markets in Europe and America are set to rally today, after Donald Trump took a massive step towards shaking up the US tax system.

In Trump’s first legislative triumph, the Senate finally passed the president’s long-awaited tax reform bill. The move means the president can look forward to signing off a final bill on tax reform soon.

The reforms include a hefty cut to US corporation tax, down from 35% to 20%, bringing America into line with other advanced economies. There are also sweeping changes to individual tax rates - which Trump claims will make people “very, very happy’.

But...the “once-in-a-lifetime” plan to cut taxes for “average Americans” has been criticised by experts who say it’s a shameless giveaway of wealth to the richest 1%.

Republicans claim that the $1.4tn package of cuts can be funded through growth; but an independent committee found it could add $1 trillion to the national debt.

Democrats, though, slammed the changes as a giveaway to corporate America and the wealthy.

Chuck Schumer, the Senate minority leader, declared:

“In the waning hours, this bill is tilting further towards businesses and away from families.

“Every time the choice is between corporations and families, the Republicans choose corporations.”

But the financial world is welcoming the Senate vote, despite the pressure building on the White House over links with Russia.

Today, Wall Street is tipped to open strongly, possibly driving the Dow Jones to a new all-time high.

The FTSE 100 has already reacted, jumping by 60 points to 7360 at the start of trading in London.

But sterling is under pressure this morning as Theresa May heads to Brussels for crunch talks with the EU.

The pound has shed almost half a cent at $1.343, amid reports that London and Dublin haven’t (yet) reached an agreement on the Irish border.

As my colleague Lisa O’Carroll reported last night:

Theresa May and the Irish government have failed to reach a deal on the crucial Brexit issue of the Northern Ireland border ahead of a crunch meeting on Monday lunchtime with the European commission president, Jean-Claude Juncker.

Despite intense efforts over the weekend to agree a proposal on how to avoid a hard border in Ireland, Irish officials revealed at midnight on Sunday that “there is still a way to go” to achieve a meeting of minds on the issue.

But there could be plenty of drama in Brussels, as Britain pushes for a breakthrough that would pave the way for trade talks.

Also coming up today, we get a new health check on Britain’s builders (who have been struggling in recent months) plus the latest eurozone investor confidence index and US factory orders figures.

Here’s the agenda

  • 9.30am GMT: UK construction PMI for October
  • 9.30am GMT: Eurozone Sentix investor confidence report
  • 3pm GMT: US factory orders for October

Updated

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