Tax-Bill Momentum Boosts Global Shares -- 2nd Update
December 19 2017 - 8:08AM
Dow Jones News
By David Hodari
-- U.S. equities on course for upbeat open
-- Investors await crucial tax votes
-- South African equities, currency higher
European stocks' early momentum ran out of steam after most
Asia-Pacific indexes closed higher Tuesday amid the increasing
likelihood of an overhaul of the U.S. tax code.
The Stoxx Europe 600 was flat in early afternoon trading.
S&P futures were up 0.1% in premarket trade.
U.S. retailers were on course for a positive open, with Under
Armour Inc. looking to gain 1.8% and Gap Inc. heading for a 1.5%
rise. Retailers are among the companies that tend to pay high
effective tax rates, analysts say.
Those moves, as well as pockets of optimism across European and
Asia-Pacific on Tuesday came in conjunction with the growing
probability that Republican leaders will succeed in changing the
U.S. tax code before the new year.
House Republicans will vote Tuesday on the sweeping rewrite of
the U.S. tax code, with the Senate expected to follow later Tuesday
or Wednesday. The plan would cut the corporate rate to 21% next
year from a top rate of 35% and lower the top individual tax rate
by 2%.
While the House was expected to pass the bill by a comfortable
margin, stocks had yet to price in the full expected impact of the
legislative change, said Ben Laidler, global equities strategist at
HSBC.
"There'll be some movement the more likely it becomes. The
S&P's done well and that tells you it's not been priced in yet.
The tax cuts could add 7% to large cap earnings, double that to
small cap earnings... and tax reform should extend this earnings
cycle," Mr. Laidler said.
With tax-cut proponents citing economic benefit as a motivation
for the bill, "we don't think [the impact on GDP growth] will be
massive... the main focus is the bill's impact on wages and
inflation, but there is also the question of what impact it has on
international trade," said Peter Schaffrik, head of European
economics and interest rate strategy at RBC Capital Markets.
U.S. 10-year government bond yields edged up to 2.393% from
2.392% late Monday. Yields move inversely to prices.
That tax-driven momentum seemed to erode in early afternoon
European trading though, amid a 0.3% uptick in the euro to
$1.1811.
South African companies listed in Europe posted some of Europe's
sharpest rises following the election of pro-business,
anticorruption candidate Cyril Ramaphosa as leader of the country's
ruling African National Congress on Monday. Mr. Ramaphosa is likely
to win the presidency at national elections in 2019.
Steinhoff International Holdings was up 7.8%, and Old Mutual
increased 4%, helped by the sale of an asset-management unit.
The South African Rand slid to $0.0783 overnight, but the
currency remained 2.6% above Monday's open.
Semiconductor companies outperformed, despite a 0.2% fall for
the Stoxx Europe 600 technology basket and weak tech trading in
Asia-Pacific. Dialog Semiconductor was up 11% and AMS AG rose 4.5%.
Dialog announced after markets closed on Monday that Chinese chip
maker Tshinghua Unigroup had raised its stake to 9%.
The Stoxx Europe 600's gains were broad-based with the index's
banking sector gaining 0.4%.
In China, both the Shanghai Composite and the Shenzhen Composite
rose 0.9%. Hong Kong's Hang Seng Index returned to positive
territory for December, rising 0.7%, with tech heavyweight Tencent
Holdings up 1.8%.
Nikkei fell 0.2%, with Sony 0.9% lower and Nintendo falling
0.8%. Taiwan's Taiex closed 0.4% lower, dragged down by Apple Inc.
suppliers Largan Precision and Foxconn Technology, down 2.9% and
1.1% respectively. Similarly, Korea's Kospi closed 0.1% lower and
Malaysia's benchmark fell 0.8%.
Bitcoin was last down 6.3% at $17,772, according to CoinDesk,
following an early-week fall amid the launch of CME futures
trading.
Gregor Stuart Hunter contributed to this article.
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
December 19, 2017 07:53 ET (12:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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