House and Senate look to come together on tax cuts

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Published Date 11/13/2017

Friday, selling in the bond and mortgage markets drove the bellwether 10 yr. back up to its support level at 2.40%; this morning the level has held with lower stock indexes; the 10 2.38% -2 bps from Friday.

No data today, but this week has many significant data points; although as we have noted previously, traders are not as focused on data now with the tax cut plans working through Congress. Not that data is being ignored, just that all the financial markets here in the US and globally are more interested in what will eventually come with a tax bill.

The closer to a proposed deadline, the less confident markets become. That is the case with the tax bill now. As recently as a week ago there was little concern, but now, as the Senate and House bills are out, markets are losing a little enthusiasm. Not unusual; we see that kind of reaction on about every major market focus as the timeline narrows. We will get a tax cut; that isn’t the issue. The issue now is when and what it will be. Stocks lower this morning, but nothing dramatic, holding interest rates steady.

Senate Republicans have unveiled a new plan that differs from the House of Representatives’ version, and there are few signs of a compromise. The head of the House of Representatives' tax-writing committee said on Sunday he would not accept elimination of a federal deduction for state and local taxes, opposing a proposal from Senate Republicans. Unease among Republicans about a massive increase in the federal deficit could complicate passage of two tax-cut bills working their way through the U.S. Congress. Now that there are two versions to contemplate, the heavy lifting will begin. Paul Ryan still saying the House will pass its bill by Thanksgiving, although does it actually matter? The two Houses have to have an agreement if any tax cut will occur. It will happen, maybe not this year and maybe not as positive as markets are expecting.

This Week’s Calendar:

Monday
- 2:00 pm Oct Treasury Budget (-$58.0B)
Tuesday
- 6:00 am NFIS small business optimism index (105 from 103 in Sept)
- 8:30 am Oct PPI (+0.1%, core +0.2%)
Wednesday
- 7:00 am weekly MBA mortgage applications
- 8:30 am Oct CPI (+0.1% yr./yr. +2.0%; core +0.2% yr./yr. +1.7%) Nov NY Empire State manufacturing index (26.0 from 30.2 in Sept) Oct retail sales (+0.1$, ex auto sales +0.2%)
- 10:00 am Sept business inventories (+0.1%)
Thursday
- 8:30 am weekly jobless claims (235K -4K) Nov Philadelphia Fed business index (25.0 from 27.9) Oct import and export prices (imports +0.4%, exports +0.1%)
- 9:15 am Oct industrial production and capacity utilization (production +0.5%, cap utilization 76.3%)
- 10:00 am Nov NAHB housing market index (67 from 68 in Oct)
Friday
- 8:30 am Oct housing starts and building permits (Starts 1188K +5.0%; permits 1245K +2.6%)

Source: TBWS

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