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European stocks drop as doubts grew over Trump tax-cut potential

European stocks fell, mirroring a drop in US index futures, as the failure to pass US health-care legislation on Friday sparked fresh doubts over the ability of US President Donald Trump’s party to cut taxes and boost infrastructure spending.

The Stoxx Europe 600 Index was down 0.7% at 8:24 in London, with a gauge for the basic resources sector dropping 1.5%.

Mining stocks have been among the biggest beneficiaries of the Trump rally started in November. S&P 500 futures were down 1% on Monday.

Trump’s inability to secure support for his health-care bill doesn’t bode well for other reforms, Michael Hewson, chief market analyst at CMC Markets, wrote in a note.

“The consensus on (the tax reform) is probably likely to be much more difficult to achieve than on health care, which suggests that a lot of the optimism about the reflation and fiscal stimulus trade may well have to be reassessed as well,” he wrote.

Reflation trades triggered by Trump’s election in November have already been faltering this month, with the dollar retreating and the S&P 500 Index headed for its worst month since October, just prior to the presidential elections.

European stocks are set to outperform US shares over the coming months, Jefferies equity strategists wrote in a note.

Earnings revisions are moving faster in Europe than in the US, and the two regions’ economic uncertainty indexes are moving in opposite directions, they wrote.

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Rand - Pound
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Rand - Euro
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