Daily Market Color

US Financial Markets Quiet Ahead of Senate Tax Bill, Inflation Data

Tax Reform, Inflation Remain in Focus

Today US financial markets held within a tight range ahead of a number of key news events due later this week.  Tax reform progress in the Senate will draw the most attention, with the new bill expected to be brought to the floor for a vote as early as this Thursday.  Also on Thursday, the Fed’s preferred measure of inflation, the personal consumption expenditure index, will be released for October.  Core PCE is expected to rise 1.4% YoY for October while overall PCE is estimated to be near 1.5%.  Consumer price growth has remained the central uncertainty amongst Fed officials (and headwind to short rate normalization), and just last week Janet Yellen expressed concerns over the expected timing of inflation reaching the 2% target level.  



The Treasury yield curve flattened further during today’s trading session, with yields/rates down 1-3 bps across the curve.  The 10-year note yield is currently trading near its lowest level in the past three weeks at 2.32%, and the spread between 2- and 10-year yields has narrowed to 58 basis points.  US stocks finished mixed on the day, with the Cyber Monday bump in retail stocks being offset by a decline in energy shares.  In commodities, gold futures climbed to a five-week high of $1,925/ounce, up 0.5% on the day.  



New Home Sales Highest in a Decade

Earlier this week, political stability in Germany was lacking after failed coalition talks pointed to the potential for a minority government under Chancellor Angela Merkel.  However today, the Social Democrat party (SPD) declared its willingness to work with Merkel and the Christian Democratic Union to avoid such an outcome.  “The SPD is firmly convinced that talks are needed,” SPD Secretary General Hubertus Heil told reporters, but stopped short of admitting a need or want for a grand coalition.



Crude Volatility Ahead of Meeting

Crude oil futures reversed the majority of Friday’s gains, as investors grew skeptical of whether oil-producing nations would be able to agree upon the final details for an extension to the existing supply-cutting agreement which is set to expire in March.  OPEC members and their allies are scheduled to meet in Vienna later this week to hammer out an extension plan, along with an outline for an exit strategy further down the road.  Russia’s involvement in the new proposal has presented the largest hurdle thus far, with Russian energy officials requesting language to be included in the deal that would link the size of the curbs to the health of the oil market at any given time.  Crude futures are likely to trade off negotiation headlines until the conclusion of the meeting. A barrel of WTI is currently trading 1.4% lower on the day to $58.00.


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