The pound has now hit a one-month high against the euro, at €1.1415, thanks to those reports of a deal over the Irish border.
Hamish Muress, currency analyst at OFX, says investors are hoping for a significant Brexit breakthrough:
“It is understood that Prime Minister Theresa May has conceded ground to the EU around the Irish border and the final divorce bill for leaving the EU, which have been sticking points for both sides for months.
Despite the fine details of a draft agreement unlikely to be resolved until next week, the pound will be buoyed by the news that, for the time being, it looks like the EU will vote in favour of progressing talks to the next phase.”
But…. there’s confusion over whether Britain is really offering “no divergence” on regulations, as some MEPs said, or simply “continued regulatory compliance”. The final decision will be crucial.
Sign up to our email
The Guardian’s Business Today email has expanded its property coverage.
As well as key news headlines, an agenda of the day’s main events, insightful opinion pieces and a quality feature, there is now more coverage of house prices, mortgages, the rental market – and the best picture galleries from our Money pages.
For your morning shot of financial and property news, sign up here:
The president is up, and predicting a Wall Street rally today:
Pound rallies on Brexit breakthrough hopes
Sterling is pushing higher against the euro and the US dollar, following reports that Britain and the EU are close to a breakthrough.
After a slow start, the pound is now up half a cent against the dollar at $1.352.
Against the euro, it’s gained three-quarters of a eurocent at €1.14.
It follows reports that Britain has made a key concession over the Irish border. According to MEPs, the UK has offered no divergence between Northern Ireland the Republic over single market and customs union rules.
Irish broadcaster RTE says it would have “far-reaching implications”.
But it’s not clear that Northern Ireland’s DUP party would accept it — which is significant, as they’re currently propping up Theresa May’s government.
My colleague Andrew Sparrow is tracking all the action in his Politics Live blog:
The loudest complaint against Trump’s tax ‘reforms’ is that the richest Americans will benefit the most.
And yesterday, the bi-partisan Congressional Budget Office showed very clearly that this is true:
Economics professor Nouriel Roubini is concerned that the US budget deficit could spiral to $1 trillion by the end of the decade, thanks to Donald Trump’s tax shake-up.
He fears it will precede a squeeze on government spending, potentially hurting welfare spending.
Economics lecturer Stephen Kinsella of Ireland’s University of Limerick agrees that the fiscal axe will soon fall on US government spending.
Why US tax reforms aren’t a done deal yet
A bit of work still needs to be done before Donald Trump can sign off a tax reform bill.
That’s because the Senate and the House of Representatives (America’s upper and lower chambers) have both passed different legislation. The two versions now need to be merged, starting today – creating an opportunity for lawmakers to raise objections.
Michael Hewson of CMC Markets says:
It is by no means a done deal given that the Senate bill is different to the one passed by Congress in November which means any final version is likely to be revised, and then passed by both houses, before being sent for signature by the President.
What is unlikely to change are the headline numbers, which means that we can expect to see the corporation tax rate number reduced substantially from its current 35% to as low as 20%.
After a stellar year, world stock markets are closing in on a new record — $100 trillion!
Wall Street expected to hit record highs today
Over in New York, Wall Street traders will be waking up to predictions of another record-breaking open in four hours time.
The Dow Jones industrial average is forecast to jump by over 200 points, following the Senate’s approval of US tax reforms over the weekend.
It means the long rally since Trump’s shock election win will continue….
Barbara Kollmeyer of Marketwatch puts it:
The gains came as investors shifted their focus away from political tensions in Washington and cheered weekend news that Senate Republicans passed a sweeping overhaul of the U.S. tax code…..
Hopes that the Trump administration and Republicans would usher in a business-friendly tax overhaul have been a driver for the stock market’s record-setting streak over the past year. The House and Senate now must agree on a single tax bill before it can be sent to Trump to sign.
Blane Perrotton, managing director of the national surveyors Naismiths, says UK housebuilders are feeling more upbeat.
“After the Autumn Budget, developers feel like they have the Government behind them and that is further boosting confidence and activity levels.
“Residential development is certainly the most active it has been since before the Global Financial Crisis.
“On the frontline we’re seeing a huge amount of activity, especially among small and mid-sized developers, who are making the most of the vastly increased finance options available.
This jump in the UK’s construction PMI is a little surprising, says Max Jones of Lloyds Bank Commercial Banking.
Jones reckons confidence among builders is quite ‘brittle, adding:
“Anecdotal feedback indicates that margins are coming under pressure with competition increasing amid the ongoing economic uncertainty. Larger firms also feel caught in the middle between clients pushing for fixed-price contracts and investors hungry for fatter margins.
Construction bosses are also worried that the might struggle to find enough skilled labour after Brexit, Jones adds – although others are keen to invest in their UK workforce.
UK construction sector picked up in November
Breaking: Britain’s construction sector grew at its fastest rate in five months in November.
Markit’s latest PMI survey shows that housebuilding picked up last month, bringing some relief to Britain’s builders after an autumn slowdown.
That pushed the construction PMI up to 53.1, up from October’s 50.8. Any reading over 50 shows growth, so this is an encouraging signal.
Here are the key findings:
- Residential work drives modest construction rebound in November
- Commercial and civil engineering activity continue to decline
- Business optimism picks up from October’s near five-year low
Tim Moore, Associate Director at IHS Markit, blames political uncertainty for the slowdown in commercial construction activity and civil engineering work:
“UK construction companies experienced a solid yet uneven improvement in business conditions during November. Once again, resilient house building growth helped to offset lower volumes of commercial work and civil engineering activity.
“Survey respondents noted that residential projects underpinned the rebound in total new order growth to its strongest since June, helped by strong demand fundamentals and a supportive policy backdrop.
“Construction firms reported that heightened economic and political uncertainty continued to hold back commercial development activity. The latest drop in civil engineering was linked to a recent lack of tender opportunities for infrastructure-related projects.
Trump’s push to cut America’s corporation from 35% to 20% could encourage US companies to repatriate some of their immense overseas cash piles.
Fortune Magazine says this is a victory for tech giants, who have lobbied hard on this issue:
Tech companies like Apple and Microsoft have for a long time balked at the 35% corporate tax the current tax code requires them to pay on worldwide profits returned to the U.S. To avoid paying, the companies have parked as much of their profit as possible in overseas subsidiaries in countries like Bermuda and Ireland, where tax rates are low.
The Big 5 tech companies–Apple, Alphabet, Amazon, Facebook, and Microsoft–currently have a combined $457 billion held in overseas subsidiaries. Apple holds more profits overseas than any other company, with Microsoft not far behind.
Europe’s stock markets are recovering from Friday’s shock news that former Trump advisor Michael Flynn had pled guilty to lying to the FBI.
Rebecca O’Keeffe, head of investment at interactive investor, explains:
“European markets are playing catch up after closing at the depths of the Friday market meltdown on Michael Flynn concerns and embracing the weekend’s senate tax bill success.
The pro-business tax cuts look set to boost US economic growth and have provided further impetus for US and global valuations.
Every sector of the FTSE 100 is up this morning.
Multinational equipment rental firm Ashtead Group is leading the way, up 3.5%, followed by cruise company Carnival and plumbing and heating firm Ferguson.
Ashtead and Ferguson both have big operations in America, so would benefit if Trump’s tax reforms do deliver a growth burst.
All the major European stock markets are up this morning, after the US Senate approved the tax reform package over the weekend.
The German DAX is leading the charge, up over 1%, with Britain’s FTSE 100 and the French CAC close behind.
Hussein Sayed, chief market strategist at FXTM, says:
The U.S. Senate’s approval to pass the tax cut bill on Saturday overshadowed the continuing investigation into connections between U.S. President’s inner circle and Russia.
The US dollar has jumped by 0.5% against a basket of currencies this morning, reports Reuters.
The agenda: Markets welcome Trump tax breakthrough
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets in Europe and America are set to rally today, after Donald Trump took a massive step towards shaking up the US tax system.
In Trump’s first legislative triumph, the Senate finally passed the president’s long-awaited tax reform bill. The move means the president can look forward to signing off a final bill on tax reform soon.
The reforms include a hefty cut to US corporation tax, down from 35% to 20%, bringing America into line with other advanced economies. There are also sweeping changes to individual tax rates – which Trump claims will make people “very, very happy’.
But…the “once-in-a-lifetime” plan to cut taxes for “average Americans” has been criticised by experts who say it’s a shameless giveaway of wealth to the richest 1%.
Republicans claim that the $1.4tn package of cuts can be funded through growth; but an independent committee found it could add $1 trillion to the national debt.
Democrats, though, slammed the changes as a giveaway to corporate America and the wealthy.
Chuck Schumer, the Senate minority leader, declared:
“In the waning hours, this bill is tilting further towards businesses and away from families.
“Every time the choice is between corporations and families, the Republicans choose corporations.”
But the financial world is welcoming the Senate vote, despite the pressure building on the White House over links with Russia.
Today, Wall Street is tipped to open strongly, possibly driving the Dow Jones to a new all-time high.
The FTSE 100 has already reacted, jumping by 60 points to 7360 at the start of trading in London.
But sterling is under pressure this morning as Theresa May heads to Brussels for crunch talks with the EU.
The pound has shed almost half a cent at $1.343, amid reports that London and Dublin haven’t (yet) reached an agreement on the Irish border.
As my colleague Lisa O’Carroll reported last night:
Theresa May and the Irish government have failed to reach a deal on the crucial Brexit issue of the Northern Ireland border ahead of a crunch meeting on Monday lunchtime with the European commission president, Jean-Claude Juncker.
Despite intense efforts over the weekend to agree a proposal on how to avoid a hard border in Ireland, Irish officials revealed at midnight on Sunday that “there is still a way to go” to achieve a meeting of minds on the issue.
But there could be plenty of drama in Brussels, as Britain pushes for a breakthrough that would pave the way for trade talks.
Also coming up today, we get a new health check on Britain’s builders (who have been struggling in recent months) plus the latest eurozone investor confidence index and US factory orders figures.
Here’s the agenda
- 9.30am GMT: UK construction PMI for October
- 9.30am GMT: Eurozone Sentix investor confidence report
- 3pm GMT: US factory orders for October