U.S. Tax Plan Creating Uncertainty

December 15, 2017

Markets are taking a breather. To paraphrase Yogi, the attempted overhaul of U.S. federal taxation ain’t done until it’s done, and uncertainty over whether a plan will be approved next week, the content of such a deal and its likely economic effects has caused investors to pause from their earlier euphoria.

The dollar shows losses overnight of 0.5% against the kiwi, 0.3% versus the yen, 0.2% relative to the loonie and 0.1% against the euro. Sterling is an exception, falling 0.4% against the dollar on fresh concerns about the Brexit talks.

But the softer pound has lifted the U.K. stock market in an otherwise mostly down day for share prices. Equities fell 1.6% in Hong Kong, 0.8% in China, 0.6% in Japan, 0.5% in South Korea, 0.6% in Singapore, 0.4% in Taiwan and 0.2% in Australia. There have also so far been declines of 0.6% in Italy, 0.4% in France, 0.3% in Spain and 0.2% in Germany.

Ten-year sovereign debt yields slipped 3 basis points in the U.K. and a basis point each in Japan and Germany.

U.S. industrial production data get released shortly. The biggest overnight data release was the Bank of Japan’s quarterly corporate Tankan Survey, which showed significantly better conditions across all categories of firms than had been expected as 2017 draws to a close. Planned capital investment has been revised upward along with expected sales and profits. The one fly in the ointment is that conditions are expected to weaken in the first quarter of 2018.

The Bank of Russia cut its key rate by 50 basis points to 7.75%. The drop was larger than forecast and brings cumulative declines in 2017 to 225 basis points. Officials signal the possibility of further cuts in the first half of next year.

The National Bank of Ukraine, in contrast, lifted its policy interest rate by another full percentage point to 14.5%, following up on a similar move made in October. Much higher than assumed inflation of 13% overall and 8.6% on core items could force even more restraint to be undertaken in 2018.

The Bank of Mexico also tightened because of rising inflation, lifting its policy interest rate to 7.25% from 7%. An earlier rate increase occurred last May.

Central banks in Chile and Peru kept existing monetary policy stances unchanged at their last scheduled reviews of 2017.

New Zealand’s manufacturing purchasing managers index rose 0.4 points to a 3-month high of 57.7.

Irish GDP leaped 4.2% last quarter, posting a 10.5% advance from a year earlier. There was a big current account surplus in the quarter.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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