Daily Market Color

Yield Curve Flattens as Final Details of Tax Reform Still Unsettled

More Tax Reform Uncertainty

US financial markets fluctuated in a relatively narrow range throughout the day as the final outline of the House and Senate’s reconciled tax reform bill remains far from certain.  Treatment of the Alternative Minimum Tax has been the biggest sticking point thus far, with the Senate’s version of the bill keeping the corporate AMT in place to avoid a $40 billion increase to the federal deficit, while the House’s plan eliminated AMT completely.  Tech company shares took a large hit as a result of the AMT uncertainty; an inclusion of the corporate AMT would make it more difficult for those companies to claim tax credits for R&D spending.



All three major stock indices finished 0.20%-0.45% lower for the trading session, weighed down by a 1.5% decline in bank stocks.  US Treasurys were mixed on the day, with the yield curve flattening further as the spread between 2- and 10-year yields narrowed to 53 basis points – its lowest in over a decade.  The 10-year note yield finished down 2 bps to 2.35% while the 2 year Treasury hit a new 9 year high up 1 bp to 1.82%.  The US dollar climbed for a second consecutive day, up 0.2% against major currencies, highlighted by a 0.3% rise against the British pound which continues to be impacted by the uncertainty over Brexit negotiations.



US Imports at Record Highs

There was a widening of the US trade deficit in October as reflected in data released by the Commerce Department this morning.  The overall trade gap expanded to its widest levels since January, up 8.5% to $48.73 billion ($47.5 billion expected) for the month, as imports rose 1.6% to record highs while exports were relatively flat.  The largest increases in imports were observed in crude oil (expected with the rise in crude prices) and consumer goods (merchants gearing up for the holiday season), whereas the volatile soybean and civilian aircraft exports experienced the biggest drop-offs.  Also highlighted in the report, the US-China trade deficit rose 1.7% million to $35.2 billion while the trade gap between the US and Mexico widened nearly 16% to $6.6 billion.


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