GOP leaders have promised to release details on tax reforms this week and analysts at ING suggest that the devil will be in the detail when dissecting any USD positive factors stemming from repatriation tax breaks or lower corporate taxes.
Key Quotes
“Overall, we take the line that tax reforms have to make both political and economic sense for markets to seriously reprice US reflation prospects; the lack of credible details on how lower taxes will be paid for means that we are not expecting any change in the current sceptic tone within markets over a Trump tax package. Core PCE inflation (Friday) will be the main data point in the US, while the array of Fed speakers on show are likely to highlight the dichotomy within the committee on the Fed's policy trajectory. Dovish cries may prevail in the absence of any convincing economic data, while most officials may see it as too early to give any firm commitments to a Dec rate hike. This presents downside risks to the 60-65% probability of a year-end policy move priced into markets.”
“Sunday’s German elections saw a disappointing result for Merkel’s CDU/CSU party and the centre ground in general. The right-wing AFD picked up the protest vote from Merkel’s refugee policy. The results have slightly weighed on the EUR, although the prospect of normalised ECB policy is providing a strong backstop. Both President Draghi speaking (Monday) and Eurozone flash CPI data (Friday) may test the market's hawkish ECB resolve.”
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