The Market Today
Tax Plans Take Center Stage in Otherwise Quiet Week for Economic News
by Craig Dismuke, Dudley Carter
This Week’s Calendar – Quiet Week with Focus on Taxes: This week’s economic calendar is decidedly quiet relative to last week’s blizzard of very positive data. The biggest news is likely to include negotiations on the new tax Bill proposal and a Tuesday speech from new Fed Board Governor Quarles. Quarles is the new Vice Chairman for bank supervision and we have limited public commentary from him on monetary policy. As for the tax reform process, the House Ways and Means Committee will continue to fine tune the initial Bill – which they’ve indicated will take four days to complete. Already they have made some tweaks to the proposal, including indexing the brackets determining rates to inflation which reportedly added $89 billion in revenue (10-year horizon). The Joint Committee on Taxation released their scoring of the progressivity of the proposed tax plan, and it certainly is more progressive than under existing law (see Chart of the Day).
As for the actual economic reports, the September JOLTs Job Openings report will be released on Tuesday showing labor force flows, the Bloomberg Survey of Economists is scheduled for Thursday along with September’s Wholesale Inventories report, and November’s UM Consumer Confidence index will be released on Friday.
Overnight Activity – Treasury Curve Continues to Flatten in Quiet Start to First Full Week of November: The overnight market bias has been tilted slightly away from the equity space which has helped provide a bid for safer sovereign debt securities. A mixed start for Asian equities has turned more cautious in Europe where most national exchanges are in the red. Sovereign yields in the region are modestly lower in response with Germany’s 10-year yield down 2.5 bps, France’s 10-year down 2.8 bps, and Italy’s 10-year yield down 1.5 bps. In addition to the general weakness in European equities, there has been some discussion that lower weekly supply levels (of European sovereign issuances) and technical factors surrounding the ECB’s routine purchases could also be helping to push yields lower. Consistent with the moves in Europe, Treasury yields are modestly lower with current levels marking the session’s low points. The 2-year yield is up 0.4 bps while the 10-year yield has traded down 1.1 bps. The curve continues to flatten between 2s and 10s with this morning’s 70.5 bps spread a new low since November 2007. The Dollar is weaker and U.S. equity futures are mixed. Crude prices continued to push to new multi-year highs as the weekend turmoil in Saudi Arabia gave the commodity another boost.
ICYMI – November 3, 2017, Weekly Market Recap: Treasury yields moved lower last week and the curve continued to flatten to levels last seen in 2007. The moves developed despite another weekly gain for equities, an overall positive tone to the economic data (which included a mixed nonfarm payroll report), a positive growth outlook in a Fed Statement that teed up a likely hike in December, the announcement of the President’s nominee for the next Fed Chair, and the Republican’s release of the details of their tax plan. Click here to see the full (extremely busy) recap.