Daily Market Color

US Senate Renews Hope for Tax Reform

Jeff Davenport

The Trump Trade is Back in Style

Global financial markets opened today’s trading session with the news that the Trump Administration took a step forward in its quest towards tax reform, as the US Senate approved a critical budget proposal late last night.  Clearing the Senate via a 51-49 vote, the budget blueprint effectively unlocks a procedure which allows Republicans to rewrite the tax code without support from the Democrats.  Included in the proposal was the allowance for tax cuts to add up to $1.5 trillion to the deficit, a significant deviation from the House’s previous plan which had outlined a revenue neutral stance.  A draft of the new tax legislation is expected in November, although finalizing a passable version before year end will be a daunting task for the GOP.  “It’s an uphill task. We’re sort of at the bottom of the mountain and we have to keep climbing to the top,” stated Senator Lindsey Graham (Rep., SC).
This morning Treasury yields gapped higher following the budget approval news and are currently trading 2-8 bps higher across the curve.  The yield on the 10-year note is up nearly 7 bps on the day to its highest mark in more than a week at 2.39%.  All three major stock indices posted gains on the day as equity investors welcomed the Senate’s progress.  The S&P 500 (+0.5%), DJIA (+0.7%), and Nasdaq (+0.35%) all hit new record highs.  The US dollar also rose on the day, finishing 0.6% higher against major currencies.    



Musical Fed Chairs

President Trump’s selection of the next Fed Chair remains in limbo as we head into the weekend.  Previous reports this week had Stanford University economist John Taylor penned as the favorite for the position, however today it was rumored that Fed Board Governor Jerome Powell may actually have the upper hand in the race.  Powell is viewed as a close alternative to incumbent Fed Chair Janet Yellen when it comes to his dovish stance on monetary policy.  Bond market pundits are projecting that a Powell selection would spark a 5 bps drop in the 10-year Treasury yield, while a John Taylor appointment would lead to an immediate 10 bps rise in yields. 



Housing Market Hints at Post-Hurricane Recovery

A report from the National Association of Realtors today reported an unexpected increase in existing home sales during September, as the impact from last month’s hurricanes begin to fade.  Sales of previously owned homes rose 0.7% last month to a seasonally adjusted pace of 5.39 million.  Existing home sales recovered quickly in the Houston area, where purchases were up 4% YoY.  Additionally, the median house price in the US remained robust at $245,100, up 4.2% YoY, as declines in supply continue to boost home prices.  The average time a home was on the market also held near historically low levels, coming in at 34 days during September.


Jeff Davenport

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