US House and Senate Present Differing Tax Plans

Daily Analysis - 12/11/2017

Saudi Shocks Reawaken Oil Market to Political Risks

us-equities-down


US equities recorded their first weekly loss in over two months as investors turned jittery after Congressional Republicans made little progress on the tax reform front. Higher oil prices also grabbed headlines as Brent crude futures rose for the fifth straight week to consolidate above the key psychological zone of $60.00 per barrel.

Last Week


With the economic calendar particularly light during the week just ended, investors were left to focus on efforts in the US Congress to pass tax reform measures. Market sentiment turned cautious as the week progressed, with many of the new revenue sources recommended by House leaders to compensate for steep corporate tax cuts proving to be contentious. Investor concerns mounted on Thursday after Senate Republicans unveiled a draft plan of their own, which proposed delaying the rate cut until 2019. The Grand Old Party’s leaders are under acute pressure to pass the tax bill before the year ends after failing to enact any major law during President Donald Trump’s first year in office.

In Europe, volatility remained elevated as leading European Central Bank policymaker Benoit Coeure warned that financial markets in the region were not deep enough to allow quantitative easing to run on indefinitely. On the currency front, the Kiwi Dollar failed to add to gains after the Reserve Bank of New Zealand brought forward its forecast for the next interest rate hike to the second quarter of 2019.  Crude prices returned to levels not seen in more than two years, buoyed by the ongoing purge in Saudi Arabia and heightened tension between Riyadh and Teheran. Oil was also underpinned by the potential risk of a Venezuelan debt default, with a crucial restructuring talk scheduled for Monday.

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The Week Ahead


Economic data points will regain focus in the upcoming week as investor attention shifts away from central bank meetings to employment, price and consumer spending indicators. Jobs reports are due from the UK and Australia, while the US, Euro Area, Canada and the UK release CPI figures. Retail sales data will be available for the US, China and the UK. After a quiet week, the US looks set for a packed calendar, with the October Consumer Price Index kick-starting proceedings on Wednesday. Annual inflation is projected to ease to 2.00% last month, with the core rate remaining steady at 1.70%. Retail sales are also scheduled for Wednesday and are expected to reveal a moderation in October sales following a 1.60% surge during the prior month.

Major UK indicators face the risk of eclipse by growing political concerns after Brexit talks concluded their sixth round without substantive progress and Prime Minister Theresa May lost her second key minister in a week. British inflation is forecast to have touched 3.10% in October, while last month’s retail sales are projected to record their first year-on-year decline since 2013. In Asia, Japan is slated to release third quarter GDP figures on Tuesday.  If the current consensus of 1.30% annualized increase is met, the economy would have posted its seventh consecutive quarter of expansion, marking the longest streak since the turn of the century.

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