Flight to Quality Fades with Near Term Tax Reform Resurfacing

The geopolitical-driven risk-off trading that characterized financial markets action over the past week was absent for the second session in a row today.  US Treasurys prices declined across the curve, with yields/swap rates increasing 3-6 basis points in the belly-led selloff.  In addition to yesterday afternoon’s prepared speech by Federal Reserve Vice Chairman Stanley Fischer in which he asserted that foreign economies are well equipped to handle the Fed’s recent and future-planned rate hikes, bond markets reacted to commentary from Treasury Secretary Steven Mnuchin at today’s Institute of International Finance event.  After recently tempering expectations for near term tax reform, this afternoon Mnuchin announced that the Trump administration would unveil a plan to overhaul the tax system “very soon.”  With respect to the timing for implementation, he hoped that it would not “take ’til the end of the year.”  All three major stock indices gained 0.8%-1.0% on the day, highlighted by a 5.5% rise in American Express shares after the company’s earnings exceeded estimates.  Energy prices were relatively flat on the day, aside from natural gas which declined 1%.  The US dollar is also trading close to unchanged against most major currencies.  Following comments made by BOJ Governor Haruhiko Kuroda which pointed towards a continued accommodative policy from the Japanese central bank, the yen did weaken 0.4% against the US dollar for the second consecutive session.  

Economic data released on the day provided further support of the notion that the US labor market remains near full employment.  For the week ended April 15, initial jobless claims rose a marginal 10,000 to a seasonally adjusted 244,000, representing the first weekly increase in the past month, albeit the level remains well below the 300,000 threshold associated with a healthy jobs market.  The less-volatile four-week moving average of claims fell by 4,250 to 243,000, again supporting the notion that last month’s sub-par payroll growth may have been an outlier in the overall employment picture.  Additionally, the number of Americans continuing to receive benefits decreased to a 17-year low of 1.98 million for the week ended April 8.