Monday 24 September 2018

Growth fears conspire to dampen global markets

'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.' (Stock image)
'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.' (Stock image)

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)

Reuters

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