NFL and tax changes

Donald Trump spent a lot of yesterday castigating American football players for kneeling during the national anthem prior to their games beginning while his political engine is gearing up for a fight on tax. A Republican tax plan is set to be released this week detailing a cut in tax paid by businesses to 20% although the hit to the US’s budget looks extreme given the failure of Congress to repeal Obamacare as the Trump administration would have wanted.

We have not one, not two, but 13 separate speeches by Fed members this week with this being the first chance for most to outline their thoughts following the Federal Reserve’s decision to begin its balance sheet reduction plan next month.

Merkel wins fourth term as leader, but new threats emerge from the right

While Angela Merkel’s CDU/CSU party won the German general election and will now begin the process of building a coalition to govern, the focus of the newsflow out of Germany is the gains made by the Alternative fur Deutschland party, giving them their first seats in the Bundestag since their formation around 5 years ago.

The campaign politics of immigration and opposition to Islam are nothing new but the AfD now command a little over 13% of the German parliament in the best showing of a far-right party since the Second World War. The news that the party had won seats was greeted by falls for the single currency and that remains the case heading into Monday’s open.

Coalition building is now the key and we anticipate a so-called ‘Jamaica coalition’ of the CDU/CSU with the FDP and the Greens to come together following the SDP party’s refusal to take on a grand coalition with Frau Merkel. These talks could take as long as 3 months although we doubt the length will have much impact on the single currency.

May versus Moody’s

Sterling’s proved relatively resilient in the wake of both UK Prime Minister Theresa May’s appearance in Florence, Italy on Friday morning as well as a sovereign ratings downgrade to the lowest level in the UK’s history.

The pound softened on Friday afternoon following Theresa May’s appearance in Florence, Italy, where she attempted to rejuvenate and reinvigorate the Brexit talks through a speech to EU leaders. In her comments, she outlined her plan for a Brexit transition period of two years to help British businesses adjust and adapt to new regulations that’ll apply from 2021 onwards. Whether the EU will consider this change in rhetoric as the ‘sufficient’ progress that the EU’s Brexit team are looking for to trigger future trade negotiations is not yet known.

Shortly following the speech, credit ratings agency Moody’s downgraded the UK’s credit rating to Aa2 from Aa1 – meaning the agency see Theresa May’s tenure as the least creditworthy government since they started publishing ratings quite a few decades ago. Their judgement sees Brexit as the main catalyst – uncertainty over tax revenues and fiscal plans have all been clouded by not knowing the state of the UK economy in a few short years’ time.

Have a great day.