EU MID-SESSION UPDATE: Tax optimism buoys European sentiment as markets wind down for Christmas

European equities (Eurostoxx 50 +1.0%) trade higher across the board in the wake of further record highs on Wall St. last week and a broadly positive Asia-Pac session. Sentiment has largely been buoyed by ongoing tax reform optimism with the latest reports suggesting that Republican Senators Rubio and Corker are to support the tax bill. In terms of what lies ahead, the House is due to vote on the bill tomorrow, whilst US Senator Cornyn has stated that Senate will most likely pass the bill tomorrow. In terms of sector specifics, gains are relatively broad-based with individual movers including Gemalto (+6%) and Thales (+4.3%) in the wake of their tie-up at the expense of Atos (-1.3%).

The Greenback is off late Friday and overnight peaks, but underpinned on latest tax reform bill developments. GBP is holding up relatively well despite latest tests for PM May as she consults with the Cabinet on the Brexit ‘end game’, while the EU top brass stresses that the UK won’t be given any preferential treatment when it comes to trade deals. Cable is keeping tabs on the 1.3350 level, above the recent range base, albeit moderately softer vs the Eur with the cross back over 0.8800. The antipodeans continue to outperform on supportive Central Bank, macro and fiscal impulses, with the Kiwi reclaiming 0.7000 status vs the US Dollar after an improvement in the Performance of NZ Services. JPY is still trapped in a range vs the USD, albeit trending more recently towards the upper end of the 112.00-113.00 band

Bunds have succumbed to more downside, and inter-market spread activity coupled with some asset-switching seems the obvious catalysts as Portuguese bonds in particular continue to bask in the glory of becoming investment grade at Fitch, while EU equities have latched on to latest Wall Street records and mostly firmer leads from Asia-Pac bourses overnight. The 10 year Eurex bond has been 20 ticks off-side at 163.27, but now back near the upper end of the range as the focus turns to Eurozone data in the form of final CPI. In contrast, UK Gilts have recovered well from their early Liffe base to trade up at 125.65 (+18 ticks vs -7 ticks at one stage) and ongoing Brexit uncertainty with inferences for BoE policy seems to be the prop. Elsewhere, US Treasuries remain a few ticks underwater on heightened tax reform bill passage prospects, and with the curve re-steepening a little after spreads contracted to fresh multi-year levels late on Friday.

WTI and Brent crude futures trade with modest gains alongside the broadly softer USD with energy news flow otherwise relatively light after the Baker Hughes oil rig count posted a decline to 747 from 751 on Friday. In metals markets, gold has seen little in the way of notable price action alongside the broad positive risk tone, with price action in the metals complex mainly centred around China in which Dalian iron futures surged around 6% on the back of recent gains in global prices.

18 Dec 2017 - 09:55- Important- Source: ransquawk

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