News out of Washington has been tweaking the market’s interest in some renewed political momentum developing around the Trump/GOP tax reform agenda.  House Speaker Paul Ryan has been saying that the entire tax reform bill could be rolled into one bill, making it procedurally easier.  US political website Politico reports that Trump’s top aides and congressional leaders have made “significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July”.  There has been agreement to include a one-time low tax rate for US companies to bring back earnings from overseas and the article says there’s a “broad consensus” on some of the best ways to cut individual and corporate tax rates.  The USD has been on the nose till now positioning short and not at all pricing for tax reform.  Any material sign of legislative progress as opposed to talk would certainly be USD-supportive.

The AUD sits back at 0.7911, at the bottom end of its recent trading range.  There’s been nothing startling on the commodity front from the overnight session, iron ore prices down 0.35%, metallurgical and steaming coal both a little higher, but base metals mixed.  Oil and gold both eased.

As an exception to the stronger USD session, the CAD has risen by a net 0.20% against the big dollar, strengthening after the release of stronger than expected core (ex-auto) retail sales for June, up 0.7% after a 0.1% decline in May and expectations of only +0.1%.  The loonie though has given back some of those gains on subsequent USD support.  A tick up in oil prices also helped the CAD, the market expecting to see slimmer weekly inventories in the US.  On the subject of oil and the medium to longer term outlook for prices from a bullish standpoint, an Economic Letter published by two economists from the San Francisco Fed came to the conclusion that demand out of China would likely see –even on moderate growth assumptions – large increases and big support for world prices.

The Germany/Eurozone ZEW Survey of investor sentiment for August came and went without any market impact, the Germany survey “Current Situation” index actually a tick stronger than expected, but expectations lower (as did the Eurozone’s) in the wake of the stronger Euro and auto industry scandals.  ECB Vice President Vitor Constancio (ex Governor of the Banco de Portugal) has been speaking overnight but not speaking about QE tapering but at a conference on inequality.  He was quite gloomy on prospects for reducing inequality among advanced economies.  He mentioned technological developments, automation, artificial intelligence, organization of labour markets and of firms all in the direction of an aggravating inequality.

The UK CBI Trends survey for August was another positive surprise for UK manufacturing, orders up from 10 to 13 and not far short of June’s +16 post-Brexit high, also the at decade highs.  The Survey seemed to halt the decline in the Pound overnight.

US data was light weight from a market sensitivity perspective, with house prices and the Richmond Fed manufacturing survey, house prices a little softer than expected but the Richmond survey showing still solid growth in that region.

Coming Up

NZ’s Pre-Election Economic and Fiscal Update (PREFU) is being released this at midday NZT but seems unlikely to be a big influence on NZ market pricing.  Rather, it’ll show a still healthy set of accounts with rising surplus in prospect.  That serves as a backdrop for parties to make more promises.

AU Skilled vacancies for July is the only local data release today, reflecting as it has a positive outlook for local labour demand.  It rose 0.9% m/m in June.  Japan also releases its preliminary Manufacturing PMI for August this morning at 10.30 AEDT (L: 52.1), followed by final July Machine Tool Orders this afternoon.

ECB President Draghi is speaking in Germany early in the London session.  Unless he drops a bombshell giving greater clarity as to when the ECB might commence reducing its QE program, there’ll be more interest in the preliminary August Eurozone PMIs, the market looking for another batch of equally strong readings for the Manufacturing and Services sectors.  He’s then doing a Phil Collins of 32 years ago, jumping on a plane and flying across the Atlantic to Jackson Hole, Wyoming, speaking there on Friday after Yellen.

The Fed’s Kaplan is speaking tonight, with US New Home Sales for July also due.  Kaplan – a voter this year on the FOMC – has recently urged patience with future hikes, saying he’d like to see evidence that the Fed will meet its inflation target, noting the impact of globalisation on pricing power.  “We should be very patient and judicious” on our next Fed Funds rate move, he said, also saying it’s OK with getting the process of shrinking the balance sheet underway in the near future.

Overnight

On global stock markets, the S&P 500 was +0.99%. Bond markets saw US 10-years +3.14bp to 2.21%. In commodities, Brent crude oil -0.15% to $51.58, gold-0.4% to $1,285, iron ore -0.4% to $79.65, steam coal +0.1% to $98.40, met. coal +0.8% to $195.25. AUD is at 0.7911 and the range since yesterday 5pm Sydney time is 0.7898 to 0.7951.

Good luck.

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• Markets Today: 23 August 2107 (PDF, 107kb)

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