Stocks reined in by doubts over US tax reform

Thursday 21:00 GMT

What you need to know
● Stock markets struggle as Trump tax plans fail to impress
● S&P 500 gains less than 0.1 per cent, Nasdaq edges to fresh record
● Euro retreats as participants digest Draghi comments
● Crude oil pressured by falling gasoline prices
● Gold soft as dollar inches higher
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Hot topic

Global equities struggled for traction and the euro lost ground as market participants digested remarks from Mario Draghi and continued to weigh up US President Donald Trump’s proposed tax reforms.

The president of the European Central Bank gave a more upbeat assessment of the eurozone’s economic performance but reiterated that the inflation outlook remained unchanged.

Otherwise, however, he offered very little in the way of fresh information.

“Overall, the ECB’s watchword is patience,” said Philip Shaw, an economist at Investec. “It recognises the increasing momentum of the euro area recovery but acknowledges that things can go wrong.”

Divyang Shah, global strategist at IFR Markets, said: “The reason that Mr Draghi wanted to make a distinction between the balance of risk on growth and that for inflation was to ensure that markets do not overreact when forward guidance is adjusted in June.

“The ECB will paint changes to forward guidance as suggesting that further easing is less likely, and not a view that the next move is for policy to be tightened.

“Remember that the ECB still has to communicate a tapering of QE and once the June meeting has passed the focus will turn to a debate over the speed at which QE should be tapered, and sequencing.”

The euro rose as high as $1.0932 against the dollar after Mr Draghi highlighted the improved growth outlook but subsequently retreated to $1.0874, down 0.3 per cent on the day.

The yield on the 10-year German Bund, which moves inversely to its price, fell 5 basis points to 0.30 per cent.

The euro had rallied strongly at the start of the week as the outcome of the first round of the French presidential election helped soothe recent concerns about European political risk.

In focus

The markets remained disappointed that President Trump’s “phenomenal” tax proposals, unveiled during the previous session, had contained little in the way of anything new.

“As has been apparent over recent weeks, proposals for tax reform appear to be shifting to a simple tax cut and dollar repatriation scheme,” said David Page, senior economist at Axa Investment Managers.

Lee Hardman, currency analyst at MUFG, said: “The aggressive nature of the tax proposals will reinforce building doubts over the Trump administration’s ability to pass the legislation through Congress in its current form.

“The lack of clarity over how the Trump administration intends to finance the aggressive tax cuts remains a concern.”

Equities

The fresh doubts over the US tax reforms — a key plank of the Trump administration’s economic policies that helped fuel a strong rally for global…

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