Daily Market Color

Financial Markets Tepid with Tax Reform Uncertainty

Jeff Davenport

Risk-on   ==>   Risk-off

The rally in US stocks proved to be short-lived as investors shifted to risk-off mode in the final trading session of the week which featured the largest daily gains and losses in major equity indices in the past two months.  Progress on tax reform continues to be a central theme in financial markets, with the uncertainty surrounding future corporate tax rates overshadowing a strong earnings season.  The DJIA is on pace for a 0.4% decline, weighed down by shares in Walmart which retraced nearly a quarter of yesterday’s 10% gain.



The flattening of the Treasury yield curve continued, as the yield on the 10-year note declined 3 bps to just below 2.35%, while the 2 year Treasury yield traded above 1.72%.  The spread between the two yields is the tightest it has been in a decade, with the 2-year yield at its highest in nine years.  In FX, the US dollar fell to a three-week low against major currencies, down 0.3% on the day.  Bitcoin concluded its volatile week near $7,800 after touching as low as $5,600 on Tuesday.



Housing Starts Rebound

The Commerce Department’s report on US homebuilding headlined a light day of economic data reporting.  Housing starts during the month of October surged 13.7% to a seasonally adjusted rate of 1.29 million units (1.19 million expected) — the highest level in the past year.  Much of the strength was attributed to the recovery of homebuilding in the South (+17.2%) following the hurricanes, albeit the Northeast and Midwest regions also saw robust gains.  Overall, new construction on single-family homes rose 5.3% while multi-family starts climbed 36.8%.  Also detailed in the report, building permits increased 5.9% last month, boosted by the single-family component which improved to a 839,000 annualized pace – its highest since September 2007.



Crude Rises on Saudi Comments

Headlines continue to be a driving factor behind crude oil trading, as futures rose following comments from Saudi Arabia’s Energy Minister Khalid Al-Falih, who stated his view that OPEC should announce an extension to the existing production agreement when the faction meets later this month.  With the agreement set to expire in March, Al-Falih cautioned that supply levels would not be reduced enough to eliminate the glut if the deal is left as is.  The largest uncertainty surrounds the continued cooperation of Russia, who had been rumored to not be in favor of further cuts, although Al-Falih announced his belief that they would be “fully on board” if presented with a new plan.  WTI crude futures surged more than 2.5% today to $56.50/barrel, paring losses from earlier this week.


Jeff Davenport

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