Growth fears con­spire to dampen global mar­kets

Irish Independent - Business Week - - BUSINESSWEEK -

BANK­ING stocks dropped and the dol­lar slipped on Wed­nes­day as doubts over tax cuts and bond market moves hurt prof­itabil­ity and raised ques­tions over the longevity of the cur­rent ex­pan­sion in the United States.

Euro­pean bank­ing stocks were the worst per­form­ing sec­tor as share in­dexes across the con­ti­nent opened lower, fol­low­ing a poor ses­sion for US banks.

The dol­lar edged lower against a bas­ket of cur­ren­cies, hurt by a me­dia re­port that sug­gested the im­ple­men­ta­tion of a cen­tre­piece cor­po­rate tax cut un­der dis­cus­sion in US tax-re­forms plans could be de­layed.

Derek Halpenny, head of global mar­kets re­search at Mit­subishi UFJ in Lon­don, said he was du­bi­ous over the progress of the tax cuts pro­gramme be­ing urged by US Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion.

“The ini­tial phases of dis­cus­sions within the House (of Rep­re­sen­ta­tives) have brought up a lot of di­vi­sions and prob­lems ... If the story is true that they’re con­sid­er­ing a de­lay of one year to the cor­po­rate tax cut, those big dif­fer­ences will need to be sorted,” he said.

Fran­cois Savary, of wealth man­ager Prime Part­ners, said the doubts over the tax is­sue re­in­force the case for some con­sol­i­da­tion in the market, which has been fully priced for good news.

“It’s some­thing that would im­pact the do­mes­tic stocks in the US and would be a set­back for the market in gen­eral (and) it’s more than stock spe­cific as peo­ple would re­assess earn­ings growth ex­pec­ta­tions to the down­side,” he said.

On Wed­nes­day, fu­tures pric­ing pointed to a an­other lower open on Wall Street, down 0.1pc.

The losses come af­ter the US two-year to 10-year Trea­sury yield curve hit its flat­test in a decade, po­ten­tially cut­ting into the prof­its of banks. Such a move can also im­ply that in­vestors are ex­pect­ing a slow­down.

Euro­pean bonds were also snared by this yield curve flat­ten­ing phe­nom­e­non, with yields on long-term Ger­man bonds fall­ing to two-month lows on Wed­nes­day.

This is a re­ver­sal of the trend when Mr Trump was elected as US pres­i­dent a year ago. Yields and stock prices jumped in late 2016 on what was dubbed the “Trumpfla­tion” trade: a bet on ris­ing rates, in­fla­tion and se­cu­ri­ties prices in the US and be­yond.

An­a­lysts be­lieve that a flat­ten­ing yield curve at a time when the Fed­eral Re­serve is hik­ing rates is a sign that in­vestors are con­cerned over the sus­tain­abil­ity of and in­fla­tion in the world’s big­gest econ­omy. (Reuters)

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