US Rates and Tax of Importance This Week

US Rates and Tax of Importance This Week

A dearth of economic data and continuing concerns about whether the US will succeed in passing any tax reforms has splashed cold water on markets ahead of the US Thanksgiving break - Thursday (Friday AEDT). Trading is often subdued at least the day before Thanksgiving and often the following day as traders cash in leave for an extra long weekend.

While the three US benchmarks pulled back over the weekend, there's no sign of an imminent broad or deep retreat. The S&P 500 remains up more than 15 per cent so far this year.

The US economy appears to be firing on all cylinders and that's helping bulls argue that stock valuations are not unreasonable.

This week investors will get a chance to hear from Fed chair Janet Yellen and to parse the minutes from the Fed's latest policy meeting. Fed fund futures point to near total consensus that rates will rise at the Fed's December meeting. The focus is increasingly shifting on where rates are headed in 2018.

US Tax and Global Tensions

The S&P 500 slipped over the weekend, posting its first down week since early September, led by healthcare and energy stocks. The rise of Amazon and how healthcare companies will manage to compete weighed on the sector and rising tensions in the Persian Gulf kept a lid on energy names.

The prospect of a weakened tax plan took the wind out of global developed markets' sails, which hit record highs last week and saw the ASX 200 burst through 6000 points.

US Senate Republicans have released a tax plan that differed from a version put forth by the House of Representatives on several key fronts, including putting off corporate tax cuts for a year. Expectations of lower taxes, one of President Donald Trump's key campaign promises, have helped drive up the S&P 500 more than 20 per cent since the 2016 presidential election.

Eight from Eight

Wall Street recorded its eighth straight positive week, the longest string of weekly gains since 2013 as Apple results and strong services sector data added to optimism in the economy.

The dollar rose, while Treasuries edged higher as the latest jobs report did little to alter views on the timing for higher interest rates.

In news on Monday morning, Saudi Arabia arrested dozens of princes, officials and businessmen in a sweeping anti-corruption crackdown seen to be clearing the way for Crown Prince Mohammed bin Salman's accession to the throne. 

And a massive leak of 13.4 million records exposes ties between Russia and Donald Trump's commerce secretary, Wilbur Ross, along with the offshore secrets of the world's richest.

FANGs Push Market Higher

Strong results from Amazon.com, Alphabet, Microsoft and Intel were all that the bulls needed. Amazon surged 13 per cent, and in the process making founder Jeff Bezos the world's richest person at $US93.8 billion - more than $US5 billion clear of Bill Gates.

Intel gained 7.4 per cent, Alphabet 4.3 per cent and Microsoft 6.4 per cent. Strong pre-orders for the new iPhone X paved the way for a 3.6 per cent rise in Apple. The tech-dominated Nasdaq 100 had its best day relative to the S&P 500 since 2009,

Ahead of the jobs data, there are two other key US events for global investors. The first is President Donald Trump's decision on who will be the next Federal Reserve chair - this could be made as early as today. Over the weekend, Jerome Powell, a current Fed governor, appeared to be first in line, according to several media reports. That's generally seen as positive for markets given that a Powell-led Fed would signal continuity with Janet Yellen's approach to monetary policy.

Separately, Fed policymakers will meet this week, their second last gathering of the year. The market is near unanimous in positioning for a rate hike in December,

At home, it's a quiet start to a relatively data heavy week as earnings start to accelerate.

Trump Tax Reductions Nurturing Bull Market

Australian shares may extend their advance above the 5900 level today, building on sentiment from last week and Wall Street's continued bullish run. The S&P/ASX 200 Index topped 5900 on Friday, extending its rise since October 5 to 4.5 per cent.

In New York, the Standard & Poor's 500 Index rose over the weekend to end higher for a sixth consecutive week, with investors looking through a range of earnings misses including GE, renewed worries about China's debt levels and political uncertainties inside and outside of the US.

News that the Trump administration's tax cuts made a key step forward in the US Senate bolstered optimism. In addition, President Donald Trump signalled his list for the next Federal Reserve chair narrowed to Janet Yellen, Jerome Powell and John Taylor.

Low Inflation Fuels Rally

Australian shares are set to extend last week's 1.8 per cent advance as global equities continue to power ever higher, undeterred by lingering low inflation in the US.

The bull market's upward momentum remains intact, helped by increasing signs that the global economy is expanding in a harmonised way as stock markets last week rose to new highs in a number of regions

This was bolstered by China's demand for commodities. Iron ore shook off its recent drop into a bear market with a 4.1 per cent leap. Gold was higher, copper and nickel each touched one-month highs. Oil gained too.

North Korea / Elections / Central Bankers

Political events, even the ongoing war of words between the US and North Korea, tend to have ever more muted impact on investors, or perhaps it's better said as having a very time-limited impact. That's expected to be the case with election results from across the Tasman, where Bill English is in talks for form government, and in Germany, where Angela Merkel is headed for a fourth term but at a price.

A slew of speeches from central bankers this week will help provide additional context on the outlook for inflation, global growth and where interest rates are heading.

North Korea Plays Second Fiddle to Central Bankers

The Standard & Poor's 500 topped 2500 for the first time as technology stocks, including Apple, recovered their upward momentum and as investors dismissed somewhat disappointing US retail sales and industrial output data.

North Korea continues to ratchet ever higher its rhetoric against the US — and the US does its best to respond in kind — investors appear to be paying more attention to what global central bankers are saying, or at least implying.