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  • Global market focus
  • Republicans’ tax bill expected to be approved this week
  • U.S. stock market could see buy-the-rumor sell-the-fact reaction after likely passage of tax bill
  • T-note market awaits inflation news 

 

Global market focus — The U.S. markets this week will focus on (1) the expected approval by Congress this week of the Republican tax reform bill, (2) whether Congress will approve a new continuing resolution to prevent a government shutdown this Friday at midnight, (3) a busy U.S. economic calendar, (4) the Treasury’s sale of $14 billion of 5-year TIPS on Thursday, (5) another light earnings week with 12 of the S&P 500 companies scheduled to report (including FedEx and Carnival on Tue, General Mills on Wed, and Nike on Thu), (6) reports that President Trump with the unveiling of his national security strategy on Monday will accuse China of “economic aggression,” and (7) whether there a any spill-over effects today from the beginning of CME bitcoin futures trading on Sunday evening.

There may also be developments on the Russian investigation after reports that President Trump’s lawyers plan to meet with Special Counsel Mueller this week.  Separately, the markets remain on guard after recent rumors that Mr. Trump may be planning to fire Mr. Mueller by year-end.

The European markets this week will focus on Catalonia’s vote on Thursday for their regional parliament.  Even if separatists retain political control of the parliament, there is not much they can do about independence without ending up in jail.  If separatists do retain control of parliament, that will prolong the separatist problem but will not present any fresh threat to Spain since the central government has already taken full political control of the region.

In Asia, the BOJ meeting that concludes on Thursday is expected to produce an unchanged policy.  However, the markets will be watching for any hints that the BOJ may be thinking about when to start reducing its QE program or raising its interest rate targets.

Republicans’ tax bill expected to be approved this week — Congress this week appears ready to approve the Republicans’ tax bill, thereby sending the bill to President Trump before year-end, in line with their self-imposed deadline.  This week’s voting schedule has yet to be determined but the Senate may try to get its vote completed before Vice President Pence leaves on his trip for Israel.

Republican Senate Majority Leader McConnell now appears to have enough votes to pass the bill after Senators Rubio and Corker both said they will support the bill.  Senator Collins has still not said whether she will support the bill, but some of her key demands have been met, which suggests she may now vote in favor of the bill.  Senator McCain returned to Arizona on Sunday to recuperate from cancer treatment and will not be present for this week’s vote, which reduces the number of Republican Senators who will be voting this week to 51.  But Mr. McCain’s departure may have been an indication that Republican support is a done deal and that Mr. McCain’s vote is not necessary.

The betting odds for a corporate tax cut by year-end are currently at 87% and at 92% for that tax cut by March 31, 2018, according to PredictIt.org.

Meanwhile, Congress this week must pass a new continuing resolution (CR) to replace the expiring CR or there will be a government shutdown at midnight this Friday night.  The new CR is contentious since it will include the topline spending levels for the remainder of fiscal 2018.  This week’s new CR is expected to last until Jan 19, at which time Congress should be ready to vote on an omnibus spending bill to provide spending authority for the remainder of the fiscal year through Sep 30, 2018.  The markets are not displaying any significant worry about the risk of a U.S. government shutdown this Friday that would last over the Christmas weekend.

U.S. stock market could see buy-the-rumor sell-the-fact reaction after likely passage of tax bill — U.S. stock investors this week are likely to be rewarded for their year-long wait for a corporate tax cut after Republicans swept control of Washington in the November 2016 election.

The final details of the tax bill were released last Friday.  On the positive side, the corporate tax cut will occur in 2018, rather than in 2019 as in the Senate bill, although it will be cut to only 21% rather than 20%.  The tax of 15.5% on repatriated overseas cash will be a little higher than the earlier bills, but that will not have much impact on how cash is actually brought back to the U.S. since the tax is mandatory and will be applied whether or not that cash is brought back to the United States.

The S&P 500 last Friday rallied by +0.90% and posted a new record high on increased confidence that there would be enough support in the Senate to approve the tax bill.  The question once the bill is passed is whether U.S. stocks will continue to see support from the tax cut, or whether there will be a bout of “buy-the-rumor sell-the-fact.”

The U.S. stock market earlier this month already saw some significant year-end long liquidation pressure in stocks that had seen a sharp run-up this year such as the FANG stocks.  There could be some additional year-end profit-taking by individual and institutional investors if the tax bill passes and removes that forward-looking catalyst.

 

T-note market awaits inflation news — The 10-year T-note yield last week traded mostly sideways within the narrow 2-month range.  Last week’s FOMC meeting was in line with market expectations with the +25 bp rate hike and the affirmation of the 2018-19 Fed-dot rate-hike forecasts.  The T-note market will key on this Friday’s PCE deflator report, which is the Fed’s preferred inflation measure.  The consensus is for the Nov PCE deflator to edge higher to +1.8% y/y and +1.5% core from Oct’s +1.6% and +1.4% core, but for both measures to remain below the Fed’s 2.0% inflation target.

 

Global market focus — The U.S. markets this week will focus on (1) the expected approval by Congress this week of the Republican tax reform bill, (2) whether Congress will approve a new continuing resolution to prevent a government shutdown this Friday at midnight, (3) a busy U.S. economic calendar, (4) the Treasury’s sale of $14 billion of 5-year TIPS on Thursday, (5) another light earnings week with 12 of the S&P 500 companies scheduled to report (including FedEx and Carnival on Tue, General Mills on Wed, and Nike on Thu), (6) reports that President Trump with the unveiling of his national security strategy on Monday will accuse China of “economic aggression,” and (7) whether there a any spill-over effects today from the beginning of CME bitcoin futures trading on Sunday evening.

There may also be developments on the Russian investigation after reports that President Trump’s lawyers plan to meet with Special Counsel Mueller this week.  Separately, the markets remain on guard after recent rumors that Mr. Trump may be planning to fire Mr. Mueller by year-end.

The European markets this week will focus on Catalonia’s vote on Thursday for their regional parliament.  Even if separatists retain political control of the parliament, there is not much they can do about independence without ending up in jail.  If separatists do retain control of parliament, that will prolong the separatist problem but will not present any fresh threat to Spain since the central government has already taken full political control of the region.

In Asia, the BOJ meeting that concludes on Thursday is expected to produce an unchanged policy.  However, the markets will be watching for any hints that the BOJ may be thinking about when to start reducing its QE program or raising its interest rate targets.

Republicans’ tax bill expected to be approved this week — Congress this week appears ready to approve the Republicans’ tax bill, thereby sending the bill to President Trump before year-end, in line with their self-imposed deadline.  This week’s voting schedule has yet to be determined but the Senate may try to get its vote completed before Vice President Pence leaves on his trip for Israel.

Republican Senate Majority Leader McConnell now appears to have enough votes to pass the bill after Senators Rubio and Corker both said they will support the bill.  Senator Collins has still not said whether she will support the bill, but some of her key demands have been met, which suggests she may now vote in favor of the bill.  Senator McCain returned to Arizona on Sunday to recuperate from cancer treatment and will not be present for this week’s vote, which reduces the number of Republican Senators who will be voting this week to 51.  But Mr. McCain’s departure may have been an indication that Republican support is a done deal and that Mr. McCain’s vote is not necessary.

The betting odds for a corporate tax cut by year-end are currently at 87% and at 92% for that tax cut by March 31, 2018, according to PredictIt.org.

Meanwhile, Congress this week must pass a new continuing resolution (CR) to replace the expiring CR or there will be a government shutdown at midnight this Friday night.  The new CR is contentious since it will include the topline spending levels for the remainder of fiscal 2018.  This week’s new CR is expected to last until Jan 19, at which time Congress should be ready to vote on an omnibus spending bill to provide spending authority for the remainder of the fiscal year through Sep 30, 2018.  The markets are not displaying any significant worry about the risk of a U.S. government shutdown this Friday that would last over the Christmas weekend.

U.S. stock market could see buy-the-rumor sell-the-fact reaction after likely passage of tax bill — U.S. stock investors this week are likely to be rewarded for their year-long wait for a corporate tax cut after Republicans swept control of Washington in the November 2016 election.

The final details of the tax bill were released last Friday.  On the positive side, the corporate tax cut will occur in 2018, rather than in 2019 as in the Senate bill, although it will be cut to only 21% rather than 20%.  The tax of 15.5% on repatriated overseas cash will be a little higher than the earlier bills, but that will not have much impact on how cash is actually brought back to the U.S. since the tax is mandatory and will be applied whether or not that cash is brought back to the United States.

The S&P 500 last Friday rallied by +0.90% and posted a new record high on increased confidence that there would be enough support in the Senate to approve the tax bill.  The question once the bill is passed is whether U.S. stocks will continue to see support from the tax cut, or whether there will be a bout of “buy-the-rumor sell-the-fact.”

The U.S. stock market earlier this month already saw some significant year-end long liquidation pressure in stocks that had seen a sharp run-up this year such as the FANG stocks.  There could be some additional year-end profit-taking by individual and institutional investors if the tax bill passes and removes that forward-looking catalyst.

 

T-note market awaits inflation news — The 10-year T-note yield last week traded mostly sideways within the narrow 2-month range.  Last week’s FOMC meeting was in line with market expectations with the +25 bp rate hike and the affirmation of the 2018-19 Fed-dot rate-hike forecasts.  The T-note market will key on this Friday’s PCE deflator report, which is the Fed’s preferred inflation measure.  The consensus is for the Nov PCE deflator to edge higher to +1.8% y/y and +1.5% core from Oct’s +1.6% and +1.4% core, but for both measures to remain below the Fed’s 2.0% inflation target.

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