US markets rally on tax cut optimism

Image copyright Getty Images Image caption The S&P 500 rose for the 11th day in a row Stock markets rallied again on Tuesday, as optimism mounts that Washington and the other two main political…

Image copyright Getty Images Image caption The S&P 500 rose for the 11th day in a row

Stock markets rallied again on Tuesday, as optimism mounts that Washington and the other two main political parties will strike a deal to cut taxes, raise spending and prevent another government shutdown.

The White House and congressional Republicans got a boost from US President Donald Trump’s announcement late on Monday that he would not fire US Federal Reserve chief Jerome Powell.

The Dow Jones Industrial Average added almost 400 points to its record-high close of 24,780.99 points.

The Standard & Poor’s 500 index rose to another record, up by 1.8% to 2,677.91 points.

The Nasdaq Composite Index gained 1.5% to 8,804.84 points.

US financial markets had been closed on Monday for the Good Friday holiday.

On Monday, stocks closed sharply higher in what was a record day for the broad-based S&P 500 and the Nasdaq.

And investors were pleased by the fact that all three major parties in the US Congress had signed a statement pledging to resolve their differences by the end of May.

Image copyright Getty Images Image caption US President Donald Trump has repeatedly criticised the Federal Reserve’s interest rate policy

That was when Congress is due to conclude its work for the current fiscal year.

For months, Republicans have been discussing a possible deal that would cut taxes, raise federal spending and renew borrowing authority so that borrowing costs – which affect the cost of borrowing for many businesses and individuals – will be kept low.

The plans have been up in the air over the past month over a disagreement on the size of spending cuts, and Democrats’ demand for protection from deportation for immigrants brought illegally to the US as children.

“That hasn’t worked,” a Republican lawmaker told Reuters. “We need to get something done.”

The last major deal on that scale, between Republicans and Democrats in 1997, lasted nearly a year and saw defence and non-military spending doubled.

The Republican-led House of Representatives was expected to vote later on Tuesday on a budget resolution to allow a debate on tax reform, including sweeping changes to the US tax code that the White House says will boost economic growth by 3%.

The Senate could follow suit as early as Thursday.

It was not all good news on Tuesday for investors. Oil prices dropped sharply, hit by concerns that Saudi Arabia was increasing output and by an unexpected drop in US production.

Crude oil fell below $70 a barrel for the first time since January.

The pressure on the price has been sent by market analysts who have turned bearish after huge increases in crude production and the fall-out from the crisis in Venezuela.

A strengthening dollar has also added to worries that higher oil prices will push up the cost of import goods and consumption.

Image copyright Getty Images Image caption The cost of living in the US has been increasing for the last three months

However, the euro slipped below the $1.20 mark for the first time since Friday after European Central Bank chief Mario Draghi did not give any hint of an imminent tightening of monetary policy.

Mr Draghi’s comments highlighted the differences between the ECB and other central banks in countries where the economies are growing rapidly and inflationary pressures are building.

More problems for the stock market may come when US markets re-open on Wednesday morning.

Wall Street has suffered in recent weeks from worries about rising inflation and growing fears that the US Fed would increase interest rates rapidly.

But Mr Trump said he would not fire Mr Powell, despite his comments to the New York Times that a weak dollar was giving the US economy an unfair trade advantage.

The Fed has so far been more accommodating than many other countries, boosting interest rates at a slower pace, keeping short-term rates effectively lower than longer-term rates to encourage economic growth.

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