Tax Bill Aftermath

December 21, 2017

The most prominent market reaction to the U.S. tax overhaul has been the rise in long-term interest rates, although the U.S. 10-year Treasury yield settled back two basis points in overnight futures trading. The 10-year gilt and 10-year German bund yields rose another 2 and 1 basis points.

Congress is not trying to avert a federal government shutdown on Saturday.

U.S. equities fell marginally yesterday despite the Republican achievement. Share prices overnight slumped 1.7% in South Korea but climbed 0.9% in Hong Kong and 0.4% in China while dipping 0.1% in Japan and India.

Share prices in Europe are unchanged in France, Spain, Italy and Greece, and the German Dax shows a dip of 0.1%.

The dollar is unchanged relative to the yen and loonie, down 0.3% against the Aussie dollar but up 0.3% versus the Swiss franc and 0.2% higher relative to the euro and sterling.

Gold and oil slipped 0.2% overnight.

Not only did the Bank of Japan leave settings unchanged on its policy of quantitative and qualitative easing with yield curve control as was expected in the Board’s final scheduled meeting of the year, but Governor Kuroda doubled down in insisting that rates will not be raised before the inflation goal is attained. Economic growth has improved, and some analysts worry that the policy may hurt the functionality of Japan’s banking system. But core inflation is still under 1.0%, the halfway point between zero and the goal of sustained 2%. The message seems to be that after a calendar year of not changing the stance, it will be very late 2018, if not beyond, before that happens. The one dissent against the BOJ decision favored even more stimulative policy.

The Czech National Bank, which had raised interest rates in August and November, this time left the 2-week repo rate unchanged at 0.5%.

New Zealand GDP grew by a greater than forecast 0.6% in 3Q17 but dipped to an on-year increase of 2.7% from 2.8%. Growth was powered by construction. Services also were a positive force. Net exports exerted some drag.

French overall business sentiment rose a point to a 112 reading, as improved services outweighed a marginal dip in the manufacturing sector.

British consumer confidence sagged another point to negative 13 in December, its lowest reading in four years.

Consumer confidence also slipped in Denmark and Turkey this month but edged higher in Sweden and stayed unchanged in The Netherlands.

Hungary’s current account surplus narrowed last quarter, and Greece’s current account swung from a surplus in September to a deficit in October.

Icelandic CPI inflation accelerated 0.2 percentage points to 1.9% in December, while Irish producer prices in November were 3.6% lower than a year earlier.

Hong Kong consumer prices in November were 1.6% higher than a year before, and the former British colony experienced a HKD 58 billion current account surplus last quarter, which was more than 3 times greater than its second-quarter surplus.

The U.S. releases GDP, the Philly Fed manufacturing index, the FHFA house price index, the index of leading economic indicators and jobless claims today, while Canada reports its CPI and retail sales figures.

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

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