Market Eyes U.S. Tax Bill

December 19, 2017

President Trump’s signing of a broad tax bill appears fairly imminent. The House of Representatives will vote on the bill today; passage is assured. A senate partisan vote, where Republicans hold a narrower majority, could occur late today and most likely no later than Wednesday.

Equities in Asia mostly advanced overnight after a strong U.S. session. Markets rose 1.0% in Hong Kong, 0.9% in China, 0.7% in New Zealand and India, and 0.6% in Indonesia, but the Japanese Nikkei, which had climbed sharply on Monday, settled back 0.2%. Profit-taking has also occurred in Europe, where share prices have slipped so far today by 0.4% in Italy, 0.2% in Switzerland and 0.1% in France and Germany. U.S. futures, however, are again up.

Ten-year German bund and British gilt yields have ticked two and one basis points higher. The 10-year Japanese JGB yield is steady at 0.03%, and the U.S. 10-year Treasury has edged down a basis point to 2.39%.

Gold (+0.2%) and oil (+0.5%) are firmer. Industrial metal prices have lost some ground.

Today’s best-bid major currency has been the euro, up 0.3% against the dollar, which also slipped 0.2% versus the Aussie dollar, kiwi, yuan and yen and by 0.1% relative to the Swiss franc and peso. Sterling has lost 0.1% to the dollar, and the loonie is flat.

Minutes from the Reserve Bank of Australia’s last policy review of 2017 on December 5 express greater optimism regarding overall economic prospects but continuing concern over the strength of consumer demand and excessive household debt.

The Westpac gauge of consumer confidence in New Zealand sank 4.4% last quarter to a six-quarter low. The ANZ business sentiment index for New Zealand remained depressed in December at minus 37.8 after negative readings of 39.3 in November and 10.1 in October.

South Korean PPI inflation eased back to 3.1% last month from 3.6% in October. There were monthly 0.1% dips in producer prices in each of those months.

A 46.9% on-year advance in Japanese machine tool orders for November was unrevised from the preliminary estimate and similar to 12-month increases of 49.8% in October and 45.0% in September.

The German monthly business climate index compiled by the IFO Economic Institute slipped 0.4% in December from November’s eurphoric level but at 117.2 continued to signal extreme satisfaction. Current conditions improved further, while the expectations component settled back to a 2-month low. By industry, construction and retail set 2-month highs, while manufacturing and wholesaling slid to 2-month lows.

Labor cost inflation in the euro area slipped in the third quarter to 1.6% from 1.8% in the second quarter. This was still above the first quarter’s 1.5% and a rise of 1.3% in the year through the third quarter of 2016.

Euroland construction output fell 0.4% in October, its weakest month since January, which caused the 12-month rate of increase to drop to 2.0% from 3.5% in September 2.9% in 3Q and 3.6% in 2Q.

The Swiss government raised its forecast of projected GDP growth to 1.0% for 2017 and 2.3% for 2018. In the previous projections released in September, officials predicted growth of 0.9% this year and 2.0% next. They now project CPI inflation of 0.5% in 2017, 0.3% in 2018, and 0.7% in 2019. Growth still remains weaker than the long-term average trend of 1.7% per annum.

Icelandic harmonized consumer prices dropped 2.2% in the year to November. Portuguese producer price inflation accelerated to 2.7% in November.

South Africa’s index of leading economic indicators printed higher at 105.4 in October after 104.7 the month before.

Hungary’s benchmark central bank interest rate was left at 0.90%. That’s been the level since a 15-basis point cut in May 2016. Prior to August 2012 when a cycle of policy easing began, the rate had crested at 7.0%.

Scheduled U.S. data releases today include the third-quarter current account, monthly housing starts and building permits, and weekly Redbook chain store sales.

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

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