Daily Market Color

Treasury Yields Surge as Tax Reform Moves Forward

House Passes Tax Reform Bill

This afternoon Republican lawmakers moved one step closer to finalizing their sweeping tax overhaul as the House of Representatives officially passed the compromise bill via a decisive 227-203 vote.  The final version of the Tax Cuts and Jobs Act aims to cut nearly $1.5 trillion in tax reductions, including a number of business-friendly measures intended to stimulate both job and GDP growth in the US.  The last stop for the bill prior to landing on President Trump’s desk is a vote by the Senate, which is due to take place later this evening and expected to pass.

 

 

Treasurys sold off from the onset of today’s trading session, with US yields/swap rates rising in-line with the jump in euro zone yields which resulted from Germany announcing its intention to borrow more money in 2018 than it did this year.  US yields/swap rates rose 2-8 bps across the curve in a bear-steepening pattern, while euro zone bond yields climbed 5-9 bps on the day.  Equity investors took a breather from the seemingly never-ending rally in stocks, as the three major US indices slipped 0.1%-0.5% during the session, weighed down by losses in the tech sector.  In commodities, crude oil futures rose 0.5% on the day after a report showed US supplies dwindling to their lowest levels in more than two years.  A barrel of WTI crude climbed $0.30 to $57.45.    

 

 

US Homebuilding Remains Robust

The Commerce Department’s report on US homebuilding headlined a light day of economic data reporting.  Housing starts during the month of November jumped 3.3% to a seasonally adjusted rate of 1.297 million units (1.25 million expected) — the highest level in the past decade.  Much of the strength was attributed to homebuilding in the South and West where single-family starts rose to 10-year highs, while the Northeast (-40%) and Midwest (-13%) regions experienced a significant slowdown.  Overall, new construction on single-family homes rose 5.3% while multi-family starts fell 1.6%.  Also detailed in the report, building permits declined 1.4% (-3.5% expected) last month, helped by the single-family component which improved to a 862,000 annualized pace – its highest since August 2007.

 

 

Kashkari the Dove

Speaking at a meeting in Minnesota earlier today, Minneapolis Federal Reserve Bank President Neel Kashkari reinforced his dovish outlook for interest rates, a view which prompted his dissent in all three of the FOMC meetings that led to rate hikes this year.  Kashkari stated his preference to wait until inflation data supports further hikes, rather than “preemptively cutting off the expansion by raising rates prematurely.”  He also commented on the room for growth in the labor market, saying that by his estimate there still exists roughly a million workers who stand to rejoin the workforce.  This Friday the Fed will receive data on its preferred measure of inflation, the personal consumption expenditure price index (PCE), where median forecasts project a 1.5% rise in core prices during November.