What you need to know in markets on Tuesday

It’s an extremely busy week for corporate earnings this week and Tuesday will be no exception.

Among blue-chippers set to report are McDonald’s (MCD), Coca-Cola (KO), Caterpillar (CAT), AT&T (T), Chipotle (CMG), Halliburton (HAL), and Lockheed Martin (LMT), among others.

This rush of earnings will also come alongside the latest report on home prices from S&P/Case-Shiller, as well as new home sales for March, and The Conference Board’s report on consumer confidence for the month of April.

On Monday, markets rallied after the weekend’s French presidential election results allowed investors to breathe a sigh of relief with far-right nationalist candidate Marine Le Pen not exceeding expectations, fueling the belief that centrist Emmanuel Macron will be the eventual winner in a two-person runoff held on May 7.

Among other issues, Le Pen had pledged to hold a referendum on EU membership for France were she to be elected president.

The tech-heavy Nasdaq in the U.S. closed at a new record high on Monday, as the major U.S. averages gained over 1% across the board, taking their lead from equities in Europe, which staged a major rally on Monday.

Tax reform

The market’s favorite agenda item for the Trump administration coming into 2017 was tax reform. Analysts and strategists across Wall Street extolled the benefits that a reduction in corporate taxes could have to companies across America, and on Monday we got some more details on just what President Donald Trump could unveil on Wednesday.

According to a report in The Wall Street Journal on Monday, Trump has ordered his staff to clash the corporate tax rate to 15% from its current rate of 35%, and prioritize a cut in taxes over an attempt to present a plan that is revenue neutral.

The border adjustment tax, which had been a feature of the tax plan proposed by House Republicans in mid-2016, was designed, in part, to make up for the shortfall in revenue that would result from a lower tax rate. On Monday, Treasury Secretary Steven Mnuchin said that faster economic growth would make up for the revenue shortfall.

But the Journal’s reporting suggests a bigger change could be coming from the Trump administration, and one that could be quite positive for markets.

During the presidential campaign, Trump often sounded more like Democratic outsider Bernie Sanders than he did any of the Republican opponents he found himself running against. And now that Trump is in the White House, however, his administration has found working with a fractured Republican party a challenge.

Healthcare reform, the first legislative issue the administration sought to tackle with the House and Senate, ended up flopping as divides between establishment Republicans and the Tea Party turned were never bridged.

Monday’s reports on tax reform potentially not adhering to the kind of strict revenue neutral criteria one might expect from both the Tea Party and establishment members of the Republican party indicates, however, a Trump administration seeking to assert a more independent policy vision.

And if tax reform does, in fact, come with a growing deficit when scored by the CBO, markets are likely to take this development positively. Because if the Trump administration is willing to stomach adding to the deficit to get tax reform through, the next question will be whether the same political appetite exists when it comes to infrastructure.

And we’ll see if this is the beginning of a bigger fracture between the White House and the Republican establishment.

Gold and the JPY are falling which might be because of the return for the risk apetite. Investors are feeling better after the the French elections at least for now until May 7, 2017. The US dollar still without a direction and trading in tight range. The fall of the price of Oil is negative for the indices.

Source: Yahoo Finance

Trader Senan Fuchedzhiev

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