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Dollar extends gains after Trump tax plan but equities struggle

The dollar is pressing higher again after Donald Trump unveiled a long-awaited tax cut plan
AFP

Hong Kong (AFP) – The dollar edged up further in Asia on Thursday as focus turned back to the United States after Donald Trump unveiled his market-friendly tax cut plans.

However, regional equities were unable to track their Wall Street counterparts higher despite a broad move back to riskier assets — as North Korea went on the backburner — with Treasury yields rising and safe-haven gold prices slipping.

After months of waiting Trump released a tax reform blueprint that would slash corporate rates, provide relief for firms that repatriate cash from overseas and reduce the number of tax brackets from seven to three. 

The tycoon described it as “the largest tax cut, essentially, in the history of our country”, while House Speaker Paul Ryan said it was “a once-in-a-lifetime opportunity that is all about more jobs, fairer taxes and bigger pay checks for American families”.

Trump’s promise to reduce taxes, ramp up infrastructure spending and slash red tape helped drive a global market rally in the months after his November election win. But those gains fizzled as his legislative agenda suffered a series of blows and his White House has become embroiled in a host of crises.

The bill is expected to face a tough passage through Congress, with both sides of the aisle likely to question its affordability.

Still, the unveiling sparked a rally in the dollar as dealers bet such tax cuts would fuel inflation. The unit was already healthy following an indication from Federal Reserve boss Janet Yellen that she was in favour of further hikes.

– Eyes on Iraq –

“In the space of two days we’ve now had confirmation Janet Yellen is going to keep hiking rates and President Trump’s ‘Gang of 6’ have delivered a tax plan that might get through,” said Greg McKenna, chief market strategist at AxiTrader.

The dollar briefly broke the 113 yen mark for the first time since July on Wednesday before paring the gains in New York to sit at 112.79 yen. However, it resumed its gains in Asia.

The gains in the dollar against the yen helped Japan’s exporters, leaving the Nikkei 0.3 percent higher by the break.

However, while Sydney and Singapore eked out gains, Hong Kong, Shanghai and Seoul were all lower.

Oil market investors are keeping tabs on events in the Middle East after Kurds overwhelmingly voted for independence from Iraq, which has sparked fears of a crackdown by Baghdad and possible military confrontation.

The vote led Iraq’s leaders to threaten to take over oil fields in the region, while Turkey said it would cut off exports.

McKenna described the situation as “something to watch geopolitically and for oil traders as the market tightens up”.

– Key figures around 0230 GMT – 

Tokyo – Nikkei 225: UP 0.3 percent at 20,325.52 (break)

Hong Kong – Hang Seng: DOWN 0.4 percent at 27,530.01

Shanghai – Composite: DOWN 0.2 percent at 3,340.01

Euro/dollar: UP at $1.1740 from $1.1745 at 2040 GMT

Dollar/yen: UP at 112.85 yen from 112.79 yen

Pound/dollar: UP at $1.3395 from $1.3387 

Oil – West Texas Intermediate: DOWN five cents at $52.09 per barrel 

Oil – Brent North Sea: DOWN 19 cents at $57.71 per barrel

New York – DOW: UP 0.3 percent at 22,340.71 (close)

London – FTSE 100: UP 0.4 percent at 7,313.51 (close)

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