Daily Market Color

FBI Raid Puts Damper on Equity Rally

 

Stocks Pare Advances on Political Uncertainty

Major US stock indices closed near their session lows following this afternoon’s news that the FBI raided the office of President Trump’s personal lawyer, Michael Cohen.  Equities had rebounded more than 2% from Friday’s abysmal session before the report surfaced and trimmed the day’s gains, leaving the DJIA +0.2%, S&P 500 + 0.3% and Nasdaq +0.5% higher at the close.  US Treasurys pared losses from an early day selloff and finished near unchanged for the trading session, with the 10-year note yield holding just below 2.78%.  In commodities, crude oil posted its largest gain in more than two weeks as the threat of global trade wars began to subside.  WTI crude futures climbed more than 2% on the day and touched as high as $63.60/barrel.

 

 

The US dollar declined 0.2% against most major currencies, but surged 3.9% vs. the Russian ruble as financial markets reacted to the newly instated sanctions against Russia.  On Friday evening, the Trump administration announced a series of new sanctions aimed at a number of companies who hold close business relationships with President Putin, as US Treasury Secretary Steven Mnuchin instructed that those “who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.”  Russian officials promised retaliation, labeling the sanctions an “unfriendly act” while suggesting the reactive measure should be “comparable” in harm inflicted.  Adding to the tense atmosphere, this weekend Trump publicly blamed Russia for the recent chemical attack in Syria, tweeting that “President Putin, Russia and Iran are responsible for backing Animal Assad. Big price to pay.”  

 

 

Budget Deficit Projections Accelerate

A report released this afternoon from the Congressional Budget Office indicated that the US deficit forecast from June 2017 had underestimated the short-term acceleration of government spending under the new fiscal policies.  As detailed in the report, the US budget deficit is now expected to total $804 billion by 2018 fiscal year end ($563 billion in prior forecast), $981 billion in 2019 ($689 billion previously) and $1 trillion by 2020 ($775 billion prior).  The trillion-dollar watermark was not expected to be crossed until 2022 as per last summer’s projection, but the effects of the Trump administration’s tax overhaul plan and government spending bill are now expected to have a more pronounced impact than initially envisioned.  The tax legislation alone is now forecast to increase the deficit by $1.9 trillion over the next 11 years ($800 billion more than prior estimates).

 

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