Trump effect fuels shares
THERE has been much about the first weeks of the presidency of Donald Trump that has been disturbing. But the basic premise on which his administration is based is making Americans a little richer.
His promise to return the US to abovetrend growth of 3pc by cutting corporate taxes, a splurge of spending on infrastructure and a bonfire of regulations has found huge favour on financial markets.
In the wake of Trump’s first major speech to a joint session of Congress the Dow Jones soared through the 21,000 mark having passed 20,000 just over a month ago.
The surge in the Dow was enough to lift the FTSE 100 to an all-time high. So despite all those people willing Trump and Brexit to fail, the money people on Wall Street and in the City have formed their own view.
A bubble maybe. But for the moment the rise in share prices is terrific for everyone who has a pension, an equity ISA or a life insurance policy. It makes citizens with any of these assets feel a little wealthier and makes it easier for firms to invest.
In the US the surge in shares is encouraging people to splash out on sales of luxury cars. Among the beneficiaries is Britishbased Rolls-Royce, which saw a 42pc rise in American sales over the last quarter with 18pc of the rise coming since Trump arrived at the White House.
The lift in the stock market and strong house price growth are among the reasons why the Bank of England expects UK growth to hit 2pc in 2017. It believes the effect of people feeling more wealthy will offset any squeeze on household incomes caused by higher import prices.
The markets were impressed by Trump’s speech because of the note of compromise. He showed willingness, for instance, to consider the complex ‘Border Adjustment Tax’ favoured by Republicans.
That may open the way to a wider deal on cutting the tax bills of companies and middle class Americans. This is more Washington politics as it always has been played rather than ‘draining the swamp’. The Wall Street rally has been led by three sectors. Banks are up strongly because the odds on a further rise in US interest rates are rising following comments by president of the New York Fed William Dudley.
Defence stocks are soaring on the promise of $50bn (£40.7bn) of extra spending, a development which can only be good for the UK’s engineering sector, including BAE.
Faster US growth should be good for commodities, hence the rally in natural resources stocks on both sides of the Atlantic.
The week began with Hollywood disdain for Trump drowned out by the Oscars debacle. It looks like ending on an upbeat response to the Trump White House.
Who would have thought? TV times A WOBBLE in the advertising market took some of the shine off ITV’s full-year results. In spite of this the commercial broadcaster squeezed a 3pc rise in revenues and turned in a respectable profit before tax of £847m, bolstered by its production arm.
With very little net debt chief executive Adam Crozier has positioned the company well to continue its progress as a production powerhouse.
The first decline in advertising revenues since 2009 immediately gave rise to specula- tion that the group is ripe for being bought in an increasingly competitive market where traditional media must compete with digital rivals. It is easy to forget, however, that in the UK there are few easier ways to reach a mass market than ITV.
Moreover, the tendency for people switching to online broadcasters is to use their devices to override the ads.
Allowing ITV to be swallowed by a potential predator would be a big mistake for the UK. It would be a crushing blow to ‘creative’ Britain which is so important to GDP and the balance of payments. Worse, it would mean command and control shifting from London to Denver, New York or wherever the HQ of the buyer resides.
Over time that would lead to an erosion of creativity, jobs, technology and skills in one of our most vital post-Brexit industries. Flight path LONG gone are the days when Britain ruled the skies.
Data for 2016 from International Airport Review shows Atlanta top with 104m passengers, followed by Beijing with 94m, then Dubai, Los Angeles, Tokyo and Chicago.
London is European top dog with 75.6m passengers, in seventh place. A third runway and a Britain ‘open for business’ could see Heathrow reaching for the stars again.