» The Global Markets Weekly – 10/30/17 Decision Economics

The Global Markets Weekly – 10/30/17

Posted October 29, 2017 by rvillareal

 Congress Buckles in for Tax Package Ride

The U.S. backdrop appears firmer after Friday’s solid GDP report (see Focus article), coupled with Congressional work on the tax package moving into high gear after months of little progress, lifting the dollar and yields, and helping the equity market backdrop. Both houses of Congress have agreed on a budget for fiscal 2018 which provides for $1500B in net tax reductions. But, $1500B in net tax reductions may end up including $6000B in tax reductions and $4500B in tax increases, so even though the ultimate bill may fall short of “true tax reform,” it will include a lot of winners and losers.

The long-long awaited details of the tax plan are expected to be released by the House on November 1, perhaps even on the same day Trump tells us his choice of Fed Chair (and maybe even Fed Vice Chair), with Jerome Powell the clear betting favorite at the moment. For the typical firm, the new tax code will be a lot more important than who is the next Fed chairman  The loss of a tax break could be forever but the next Fed chairman may only last 4 years.

The House passed the budget by only four votes, with 20 Republicans voting no. The party dissenters included high state income states, like NJ, which would face a loss of the state income tax reduction. Much of the expected revenue will come from curbing relatively small tax breaks, although one large loophole that might be eliminated is the deduction for interest expense on new loans.  We think that the big winners (other than the well-to-do) will be smaller corporations with little debt or other special tax breaks.  The losers will be large corporations with heavy debt expenses.

The losers may care more about losing since they could lose a lot; many of winners may only benefit a little.  So a small group of big losers may prevent much from really happening since the losers have more at stake than the winners.  Veteran observers remember tax reform was almost derailed in Washington DC from determined opposition from a group of outraged yoga instructors who faced a much higher tax on services.

Coming Week’s Key Indicators and Events:

  Release DE / Consensus Comment
U.S. Oct. Mfg ISM (We)

Oct NM ISM (Fri)

Oct. Payrolls (Fr)



Oct. UE Rate (Fr)

59 / 59.5

58 / 58.5

330K / 310K



4.1%/ 4.2%

Very strong results for both, settling back from September surge.

Weight of evidence points to strong rebound in post-storm jobs, with claims and surveys suggesting solid backdrop.

Grinds lower.

Euro Q3 GDP (Tu)

Oct. CPI (Tu)


0.5%  / 0.5% q/q

1.4%  / 1.5% y/y


Political risks not gone, Catalonia split a headache for Spain. Inflation moving sideways kept ECB a bit dovish last week despite curtailing asset purchases in 2018. Better growth signs.
U.K. BoE Rate  Hike to 0.5% Brexit a mess for outlook, but a measured hike looks all but assured with inflation topping around 3%.
Japan BoJ Decision Hold / Hold Monetary status quo intact with inflation soft, looking for more structural reform.
China Manuf PMI (Tu)

Cxn Mfg PMI (We)

  52 / 51

51.5 / 52.1

October updates come after mixed September readings.


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