Risk Assets Gain as Tax Reform Progresses, Manufacturing Data Impresses

Today in Tax Reform News

The House of Representatives officially approved its tax reform bill this afternoon via a 227-205 vote.  Some of the key measures of the House’s bill include:

• Permanent reduction of the corporate tax rate from 35% to 20%
• Consolidation of individual tax brackets from seven to four: 12%, 25%, 35% and 39.6%
• Elimination of Alternative Minimum Tax
• Cap pass-through tax rate at 25%

 
The more daunting task for the GOP lies in the Senate’s passage of its own bill, where Republicans hold a slim 52-48 majority of votes.  The first version of the Senate’s plan drew criticism from several Republican lawmakers over issues such as the repeal of the ACA requirement, preferential treatment for corporations and the projected budget deficit were it to be implemented.  A floor vote is expected in the Senate sometime after Thanksgiving.

 

 

Risk-on!

US financial markets activity today reversed the cautious tone that was present in the first half of the week, as equities surged and Treasurys sold off.  All three major stock indices posted gains of 0.9%-1.4% with Wal-Mart pacing blue chip shares, up 10% on the day, after the company reported stronger than expected quarterly earnings.  The selloff in Treasurys pushed yields/swap rates 3-6 bps higher across the curve in a bear-steepening pattern.  The yield on the 10-year note is currently hovering near 2.37%, while the 2-year yield touched a new nine-year peak of 1.71%.  In commodities, WTI crude futures continue to trade near $55/barrel amid the recent OPEC demand concerns.  Investors will be looking ahead to the OPEC meeting in Vienna at the end of the month for further guidance on the potential plan for an extension to the existing production cuts to curb the global supply glut.   

 

 

Industrial Production Jumps Post Hurricanes

US economic data from the Federal Reserve revealed factory activity surging last month to its highest level since 2009, recorded at +1.3% MoM (+0.3e).  Manufacturing output accelerated 0.9% from the previous month’s upwardly revised figure and was the main contributor to the 0.9% rise in overall industrial production.  Activity related to hurricane recovery accounted for much of the gain, as production of motor vehicles, chemicals and petroleum and coal products all rose sharply.  Also detailed in the report, capacity utilization, a measure of current vs. potential output at plants, edged 0.6% higher to 77%.