Fundamental Analysis

Tax Twists

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Markets were pushed and pulled on leaks and reports from tax plans Thursday in a clear sign of what's at stake. The Swiss franc was the top performer while the New Zealand dollar lagged. New RBA forecasts are due up later.

Markets soured on signs the Senate would ask for a one-year delay in cutting corporate taxes to 20% on Thursday but the mood had improved by late in the day on signs the legislation could pass.

There is a balance between how favourable the plan is for business and the economy versus the likelihood of success. The initial reports of a one-year delay in the corporate rate sent the S&P 500 down as much as 26 points and USD/JPY as low as 113.10 – the worst in a week.

Signs of support from influential Senators late helped to boost USD/JPY back to 113.50 and the S&P 500 closed down 10 points.

At the same time, other markets were pulled in different directions. There was a sizeable slump in Eurozone sovereign bonds and that pushed 10-year yields up roughly 5 bps throughout the continent and narrow spreads with Treasuries. That gave the euro a half-cent boost.

In Japan, we will be watching the Nikkei very closely in the day ahead. It surged to the highest since 1992 on Thursday before reversing to close slightly lower. The selling continued in the futures market in a nearly 4% drop from the peak.

Aside from that, Australian dollar risks will be high at 0030 GMT when the RBA will update its forecasts on growth and inflation in the Statement on Monetary Policy.

Author: Ashraf LaidiWebsite: http://ashraflaidi.com/
Ashraf Laidi
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.
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