ISM manufacturing index expected to remain strong
Senate tax bill spills into Friday
Oil production cut agreement is extended through end-2018
Republicans devise new plan for avoiding a government shutdown next Friday
ISM manufacturing index expected to remain strong — The market consensus is for today’s Nov ISM manufacturing index to show a small -0.4 decline to 58.3, adding to October’s -2.1 point decline to 58.7. But even if the index today falls by the expected -0.4 points, the index would still be in strong shape at only -2.5 points below September’s 13-year high of 60.8. U.S. manufacturing confidence remains strong due to recent U.S. GDP growth near 3% and much stronger growth overseas. In addition, the orders pipeline is in good shape with the Oct ISM manufacturing new orders sub-index at 63.4.
Vehicle sales expected give back a bit more of Sep’s hurricane surge — The market consensus is for today’s Nov total vehicle sales report to move lower to 17.50 million from October’s 17.98 million. U.S. vehicle sales in September spiked higher by +15.2% to a new 12-year high of 18.47 million units due to the need to replace vehicles damaged or destroyed by Hurricane Harvey. Vehicle sales are now dropping back to more sustainable levels. The surge in vehicle sales gave a temporary boost to U.S. GDP and to the U.S. manufacturing sector.
Senate tax bill spills into Friday — The Senate on Thursday evening gave up trying to get a final vote on the tax bill and is instead scheduled to reconvene Friday morning. Senate Majority Leader McConnell on Thursday ran into a major road block when (1) the Senate parliamentarian ruled against putting Senator Corker’s tax-hike trigger in the tax bill, and (2) the nonpartisan Joint Committee on Taxation said that bill would produce a $1 trillion deficit over 10 years even after dynamic scoring for stronger economic growth. That prompted a mutiny by Senator Corker and his two compadres (Flake and Lankford), who demanded major changes in the bill to reduce the deficit impact.
If the Senate can approve the tax bill on Friday, the next step would be for House Speaker Ryan to see if he can get House Republicans to pass the Senate bill as-is. If so, then the Republicans’ tax bill would be done and ready for President Trump’s signature. If not, then House and Senate Republicans would have to hold a conference committee to reach a compromise bill and both houses of Congress would then have to pass that bill, a process that could take a matter of days or even weeks, assuming it happens at all.
The betting odds indicate a strong likelihood that Congress will pass the tax bill. The betting odds for passage for a corporate tax cut by year-end rose by +9 points late Thursday to a new record high of 73% at PredictIt.org. The odds for a tax cut by March 31, 2018, three months later, rose by +5 points to a new record high of 85%.
Oil production cut agreement is extended through end-2018 — OPEC and non-OPEC members at their meeting on Thursday agreed to extend their production cut by 9 months to the end of 2018. That decision was in line with market expectations and Jan WTI crude oil futures closed modestly higher by +0.17%.
There was a little disappointment that the group decided to hold a review of the agreement in June 2018, which suggested that the agreement could be diluted for the second half of 2018. However, oil producers insisted that the review will only be a formality and that any dilution would be unlikely.
In any case, now that OPEC and Russian production figures are largely known through 2018, the two main variables for oil prices will be (1) world oil demand, and (2) U.S. shale production. U.S. oil production has soared by 983,000 bpd (+11%) since November 2016 when oil producers first agreed to their 1.8 million bpd production cut. That means that U.S. producers have nullified more than half of the OPEC/non-OPEC production cut and have captured market share away from the OPEC/non-OPEC group.
With Jan Brent crude oil prices late Thursday at the elevated price of $63.57 per barrel and Jan WTI oil prices at $57.40, there is every reason to believe that U.S. shale producers will continue to ramp up their production since they can lock in a profit by selling near-term oil futures. Indeed, the IEA is forecasting that non-OPEC production in 2018 will soar by +1.8 million bpd, which would swamp the OPEC production cut and lead to a resumption of the rise in global oil inventories. That would lead to downward pressure on oil prices during 2018 and could suggest that oil prices may already be near the top of their medium-term range.
Republicans devise new plan for avoiding a government shutdown next Friday — Republican leaders’ latest plan for keeping the government open past next Friday’s CR expiration date is for Congress next week to approve a simple, short-term continuing resolution (CR) that would last until Dec 22, just before the Christmas holiday. Congress by Dec 22 would then have to approve another CR that would contain the actual spending levels for the remainder of the fiscal year and possibly address Democratic demands for a Dreamer solution. The Dec 22 CR would last until January and would give committees time to develop appropriations bills. Congress in January could then approve the actual spending bills for the remainder of 2018 that were agreed to in the Dec 22 CR.
The main drama will be whether Republicans by Dec 22 will meet the Democrats’ demand for a Dreamer fix. If not, there may be a government shutdown on Dec 22. The Dec 22 CR will need the support of a handful of Democratic Senators to approve a cloture vote and avoid a Democratic filibuster. In the House, Speaker Ryan may also need some Democratic support if his conservative wing refuses to support the CR. Democrats therefore have some leverage to get the Dreamer solution that they are demanding.