Equities drifting lower ahead of weekend

There’s a somewhat bored and listless atmosphere hanging over equity markets this morning. This follows on from some mixed earnings across the UK and Europe and some caution ahead of President Trump’s speech to Congress next week. Hopes are high that Trump will announce big plans for tax reform and infrastructure spending when he addresses both Houses on Tuesday. This is helping to keep a bid under US stocks which last night saw the Dow hit its 10th consecutive record close.

It’s also worth noting that market participants really don’t expect the FED to hike rates next month, no matter what FOMC members are saying. This is reflected by the pull-back in the US dollar which has brought the Dollar Index back below 101.00. Partly this is to do with uncertainty over the outlook for fiscal stimulus. But it’s possible the situation could become clearer after Trump’s speech on Tuesday. Then attention will turn to speeches next Friday from Fed Chair Janet Yellen and her deputy Stanley Fischer.

Trump’s new Treasury Secretary Steven Mnuchin gave an interview yesterday where he said that the administration’s number one aim was to boost economic growth and tax reform was the cornerstone of this agenda. He said that that this reform would be very significant, focusing on tax cuts for middle income earners. The system would be simplified and that business tax would be made competitive with the rest of the world. This would stem the flow of multinationals that had moved their operations overseas and help to bring cash back from offshore. Mr Mnuchin said he expected Congress to have worked its way through the reforms by the August recess. However, he also said that any steps taken by the administration were unlikely to have any effect this year. The Treasury secretary also said the administration still aims for "sustainable growth of 3 percent or more." He said he expects to hit that mark more toward the end of next year.