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Weekly global market focus
U.S. tax bill will be worked over this week
Fed will lose another FOMC voter
T-note prices recover a bit while stocks remain buoyant

Weekly global market focus -- The U.S. markets this week will focus on (1) Congressional committee consideration of tax reform, (2) any provocations by North Korea as President Trump visits Asia this week, (3) U.S.-Chinese relations as President Trump visits China on Wednesday-Friday, (4) the wind-down of Q3 earnings season with 50 of the S&P 500 companies scheduled to report this week, and (5) the Treasury's quarterly refunding operation of 3-year, 10-year and 30-year securities.

President Trump is in Japan through today and will travel tonight to South Korea for meetings and events on Tuesday and Wednesday. On Wednesday, Mr. Trump will travel to China where he will meet with Chinese President Xi and Premier Li Kequiang and attend other events including a state dinner. On Friday, Mr. Trump will travel to Danang, Vietnam where he will participate in the APEC Summit. Mr. Trump will be in Vietnam through Sunday and will then stop in the Philippines on his last stop before traveling home.

The markets this week will be watching for any emerging-market contagion risks after Venezuela last week said it needed to restructure its debt. There is political uncertainty in Saudi Arabia after Saturday's arrest of princes, billionaires, ministers, and former officials in a claimed crackdown on corruption, although Crown Prince Mohammed bin Salman may also be trying to sideline any challengers to his consolidation of power. Regarding Spain, former Catalan President Puigdemont turned himself in to Belgium police over the weekend and will now apparently face arrest charges in Spain related to Catalonia's failed attempt to declare independence.

The global markets will be watching for any fallout for global political and business leaders after news reports emerged on the 13.4 million leaked confidential records called the Paradise Papers, some of which contain information on efforts to conceal assets and evade taxes. The International Consortium of Investigative Journalists (ICIJ) over the weekend found the names of more than a dozen Trump advisors, cabinet members, and major donors in the papers. There are no allegations of illegality at this point, although the papers may indicate some conflicts of interest for U.S. Commerce Secretary Wilbur Ross.

In Europe, the focus will mainly be on the resumption of Brexit talks on Thursday with indications that the UK is not coming to the table with any new concessions to produce forward progress. Monetary policy in Europe is now on hold after (1) the ECB on Oct 26 announced that its QE program would be extended through the first nine months of 2018 at 30 billion euros per month, and (2) the BOE last Thursday raised its base rate by +25 bp to 0.50%, reversing the post-Brexit cut made in Aug 2016.

In Asia, the focus will mainly be on President Trump's visit, which has implications for trade relationships and whether there may eventually be a military conflict with North Korea. The markets remain laser-focused on the 10-year Chinese government bond yield, which rose sharply by 30 bp in the past five weeks to post a new 2-1/4 year high of 3.93% last Tuesday. The People's Bank of China capped the surge in the 10-year bond yield later last week with heavy liquidity injections, causing the 10-year yield to ease slightly to 3.89% by Friday. The surge in the 10-year bond yield has been driven mainly by fears of a resumption of the government's deleveraging campaign now that the Communist Party Congress is over. The surge in bond yields has had a negative effect on Chinese stocks as the Shanghai Composite index last Friday fell to a 3-week low and closed the week down -1.32%.

U.S. tax bill will be worked over this week -- The markets will be closely watching how the Republicans' tax bill fares this week as the House Ways and Means Committee marks up the bill and aims for Committee passage by late this week. House Speaker Ryan on Sunday reiterated his optimism that the full House will be able to pass a tax bill before the Thanksgiving holiday in 2-1/2 weeks. Meanwhile, the Senate Finance Committee is expected to release the Senate's version of the tax bill by late this week.

The betting odds for passage of a tax bill by year-end have improved to a 1-month high of 37%, but remain relatively slim due to the lack of time before year-end. However, the odds are better for passage in early 2018 since Republicans are under the gun for a win before facing voters in the mid-term elections in Nov 2018.

Fed will lose another FOMC voter -- NY Fed President William Dudley is close to announcing his retirement, according to a weekend report by CNBC. That will add to the market uncertainty about the make-up of FOMC voters in 2018 since the NY Fed President is a permanent FOMC voter. The FOMC at its meeting last week left its policy unchanged, in line with unanimous market expectations. The market is now discounting a 100% chance of a rate hike at the next FOMC meeting on Dec 12-13, according to the Jan 2018 federal funds futures contract.

T-note prices recover a bit while stocks remain buoyant -- Dec 10-year T-note futures prices rebounded mildly higher last week after the plunge seen in Sep/Oct that was mainly driven by (1) increased expectations for Fed tightening, and (2) stronger inflation expectations tied to the rally in Dec WTI crude oil prices to a 1-year high of $55.76. Meanwhile, the U.S. stock market remains strong with the S&P 500 index last Friday edging to a new record high. U.S. stocks continue to see support from (1) strong earnings expectations, (2) expectations for the Fed to go slow on rate hikes, and (3) the firm U.S. and global economies.



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