Wall Street is set to hit a record high as a breakthrough on US tax reform propels equity valuations.
The US Senate will begin a conference this week to etch out the final details of US tax reform. Donald Trump is set to sign legislation before Christmas, sending stocks higher.
The S&P 500 may rise 0.6% at the US opening bell, according to equity futures. While the Dow Jones could gain 0.9%.
It is expected that the corporate tax will be brought down to 20% from 30%, therefore companies that rely on domestic earnings will benefit the most.
Since the beginning of 2017, the S&P 500 has added 18% to its value, enjoying the longest winning-streak on record, while the Dow Jones is up 22% this year.
The prospect of an injection of fiscal stimulus has swollen equity prices. Much of the tax reform legislation has already been priced into markets.
The dollar has gained 0.5% against a basket of currency pairs. The greenback has advanced by 0.3% against the euro and 0.4% against the pound.
This year, the dollar has given up about 9% of its value when compared with its peers.
When Donald Trump was elected president of the United States, his economic agenda was littered with potential to drive the value of the dollar higher. Trump’s protectionist stance, increased infrastructure spending, a re-write of the US tax code and a reduction of its balance sheet promised to propel the greenback to new heights.
However, the US president has failed to uphold these campaign pledges – under the Trump administration, the budget deficit has only widened – dragging the dollar lower.
Meanwhile, the euro has advanced this year thanks to a sturdy partnership between two of the eurozone’s largest economies; Germany and France. Additionally, the eurozone’s trade surplus resides at 3% over GDP, propping the euro up for further advances in the months to come.
As the US inhibits an increasingly withdrawn from bi-lateral agreements, like the Trans-Pacific-Partnership, there is room for the euro to become more of a heavy-weight and overtake the dollar to become the dominant currency reserve.
Over the weekend, the Senate approved the biggest tax law change since the 1980’s. The changes to the tax code is expected to add $20 trillion to the US national debt and increase the chances of a more aggressive monetary policy stance from the Federal Reserve.
However, looser fiscal policy and tighter interest rates should send the dollar higher.