Daily Market Color

Financial Markets Tepid to Open Potentially Volatile Week

Jeff Davenport

Tax Reform, Fed Chair, and Earnings, Oh My!

This week US financial markets will be primed for volatility in anticipation of announcements on a trio of topics, which include progress on the tax overhaul, selection of the new Fed Chair and the Q3 earnings reports of several tech giants.  Updates on the tax front included Trump’s twitter post that “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!”  In the race for the next Fed Chair, the field has reportedly been narrowed down to three – Jerome Powell, John Taylor and Janet Yellen (dove, hawk, dove).  As it relates to equities, earnings announcements this week will be headlined by Amazon.com Inc., Alphabet Inc., Microsoft Corp., Facebook Inc., and Twitter Inc. 
All three major US stock indices were under pressure to begin the week, with the tech-heavy Nasdaq leading the slide, down 0.65% on the day.  Treasurys exhibited a modest rally as yields/swap rates fell 1-3 bps across the curve, bringing the 10-year note yield to 2.37%.  The US dollar climbed 0.2% to a 14-week high against major currencies, led by a 0.4% rise against the euro.  In commodities, crude oil prices edged 0.1% higher as a barrel of WTI crude approached $52/barrel.



Operation Human Shield

The independence crisis in Catalonia continues to weigh on European markets, as the situation escalated further after Spanish Prime Minister Mariano Rajoy’s announcement this weekend which outlined the plan to effectively dismiss Catalan President Carles Puigdemont and his government.  Rajoy provided that Spain’s central government ministers would take over responsibility for running the Catalan regional administration until a new parliament could be formed via a separate election which would occur in about six months.  As to be expected, the news was not well-received by Catalan separatists, who now plan to form a human barrier around the regional government’s headquarters to prevent a shutdown of the administration.  The Catalan parliament is scheduled to meet on Thursday, one day before the Spanish senate is expected to put Rajoy’s plan into effect.  



“Abenomics” to Continue in Japan

The gamble by Japanese Prime Minister Shinzo Abe calling for a national election more than one year earlier than scheduled paid off over the weekend, as Abe’s Liberal Democratic Party (LDP), along with its coalition partner Komeito, successfully secured a two-thirds majority vote.  Awarded with the ability to propose constitutional amendments, the LDP plans to move forward with revamping the legal status of the nation’s defense forces, whose usage currently remains constrained to a defensive role in the wake of North Korea’s launching of two ballistic missile over the island of Hokkaido.  Another main priority for Abe’s administration will be the handling of its central bank’s monetary policy, which has been unprecedently accommodative given the recent shift to negative interest rates and JGB yield monitoring.  Japanese stocks climbed 0.8% on the day while the yen fell to a 15-week low in response to the voting results.


Jeff Davenport

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