A record-setting rally in world stocks yesterday ran out of steam, with unconvincing US tax cut plans cooling investors’ spirits and caution setting in as the European Central Bank (ECB) met.
Europe’s main bourses were as much as 0.7 percent lower as traders pulled back after six days of unbroken gains fueled by relief at the outcome of the first round of France’s presidential election, and encouraging earnings and economic data.
Asia felt groggy too. The Bank of Japan offered its most upbeat economic assessment in nine years, but Asia-Pacific shares ended flat a day after hitting their highest level in almost two years.
Tokyo ended the day 0.2 percent lower after a four-day rally.
Hong Kong rose 0.49 percent for a sixth straight gain, while Sydney added 0.2 percent, and Singapore and Seoul each put on 0.1 percent.
Shanghai ended 0.4 percent higher, Wellington was up 0.3 percent and Taipei edged up 0.04 percent.
A surprise move by Sweden to expand its stimulus program pushed the Swedish crown down sharply, while the Canadian dollar and Mexican peso jumped as the US said it would not scrap the North American Free Trade Agreement.
However, the focus was turning to the ECB and what bank President Mario Draghi and his colleagues have made of the improvement in eurozone economic data.
The bank is not expected to make any changes to its record low interest rates or mass-stimulus program, so market reaction to this meeting might hinge on just a few crucial words.
“It is possible that the ECB will remove the language stating that the risks [to the economy] remain tilted to the downside,” said Mike Bell, a global market strategist at JPMorgan Asset Management in London.
Eurozone government bond yields nudged up along with the euro which was at US$1.0913 having been as high as US$1.0950 this week after former French economics minister Emmanuel Macron, a pro-EU centrist, topped the first round vote in France.
Disappointment lingered after US President Donald Trump’s plans to slash company tax rates to 15 percent from 35 percent and 39.6 percent for small firms offered no details on how they would be paid for.
Billed beforehand as the biggest tax cut in history, it amounted to little more than a one-page plan and fueled the suspicion that it could run into opposition from US lawmakers worried about increasing the country’s debt levels.
“There was virtually no new information, just as expected. He was essentially repeating his campaign promises,” said Tomoaki Shishido, senior fixed-income strategist at Nomura Securities in Tokyo.
The dip in European shares saw them retreat from 20-month highs. Financials and commodity-related stocks were the main drag, although gains in other cyclical industrials, on the back of strong earnings, kept losses down.
Deutsche Bank shares fell as much as 3.5 percent even as its first-quarter net profit more than doubled following a rebound in bond trading. It shares have nearly doubled though after worries about its future late last year.
Wall Street futures pointed to a flat start for New York. The S&P 500 ended down fractionally on Wednesday as the questions left by Trump’s tax plans overshadowed more upbeat earnings.
The US dollar slipped to ¥111.23 from near a one-month high of ¥111.78 posted on Wednesday.
The yen showed no reaction after the Bank of Japan kept its policy unchangedm — as expected — with traders looking for more clues from bank Governor Haruhiko Kuroda’s news conference later in the day.
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