December 20, 2017

Markets Today: Waiting for a bill like you

As we go to print this morning, the US House has passed the US tax reform bill.

It’s now early afternoon US Eastern time and the legislation now goes to the Senate for passage that could come as early as today APAC time, depending on the length of the debate over which the Democrats have some say over whether timing can be expedited.  The Bill was passed 227-203 in the House, all Democrats opposing along with 12 Republicans.

The market expects the Senate vote to be successful after Senators Lee and Collins declared their intention to support the bill.  Lee and Collins had previously expressed reservations about certain aspects of the bill, but their support seems to give the Republicans the required numbers to pass the bill in the Senate.

Markets overnight saw bond yields move higher in Europe and in the US (and a mild steepening in the US to boot!) from a still super-strong German Ifo survey, a slightly hawkish tilt from two ECB lesser known central bankers Makuch (Slovakia) and Hansson (Estonia), and solid US housing data.  The USD remains listless and has not been able to rebuild strength lost after last week’s low CPI and despite still three rate hikes expected by the Fed for 2018.

World dairy prices were down 3.9% at the overnight global dairy auction but it’s barely touched the Kiwi, down from just over 0.70 to only just below.  While there will be some passing interest in today’s slug of NZ trade/BoP/migration data, the real interest will be in tomorrow’s Q3 GDP report, our colleagues looking for a somewhat better than expected print.

The AUD/USD is down modestly since yesterday afternoon, though trading in its recently familiar range at just over 0.7660.  It’s moved little since the news of the US House tax passage hit the screens.  Likewise, the USD is not making any new moves to the topside, remaining listless as are US equities into the last hour of US trade.

ECB member Makuch said Governing Council discussions were “shifting from asset purchases to possible future use of interest rates to regulate the economy”.  He said that “economic expansion seems to be stable and very nice and inflation has gotten closer to our goal, though at a slow pace.  ECB member Hansson said he expected the ECB to adjust their communication in the first half of 2018, gradually.  As for the German Ifo Survey, the headline Business Climate index in December was down four tenths to 117.2, it remains virtually at its highs in the history of the survey dating back to just after reunification.  The Current Assessment component rose further, again a reflection of the German economy’s acceleration through this half.  German 10y bund yields rose 7bps toward late November highs.

US housing starts and permits for November were stronger than expected, coming on the back of a high print from a supercharged NAHB Housing index earlier in the week to the highest levels since the 1990s, above pre-GFC levels.  The Atlanta Fed nudged its estimate of GDPNow for Q4 back up to 3.3% after the housing data.

Coming up

There is some potential Kiwi exposure today with the Q3 balance of payments and what it might point to for GDP tomorrow, coming with November trade.  Net migration flows data are likely to come and go without any fanfare.  These come at 8.45 AEDT, with November Credit Card spending data this afternoon at 13.00.

It’s now quiet for Australian data until the November RBA Credit report out 29 December.  There is the Westpac Leading Index and the Skilled Vacancies reports, both for November, both mentioned for completeness.  Japan has its All Industry Activity Index this afternoon, though the yen these days seems to respond more to the risk on-risk off market sentiment of the market in general rather than Japanese economic news.  The UK has its CBI Distributive Trades report tonight for December that’s, been ranging between 0 and +40 just in this half year!

Markets will now be watching Washington and when the vote will get through the Senate.  There’s also the little matter of a Budget resolution to be passed this week to avert a government shutdown.


On global stock markets, the S&P 500 was -0.27%. Bond markets saw US 10-years +6.30bp to 2.46%. In commodities, Brent crude oil +0.47% to $63.71, gold-0.1% to $1,261, iron ore -0.1% to $70.40, steam coal +0.1% to $100.30, met. coal +0.6% to $236.50. AUD is at 0.7664 and the range since yesterday 5pm Sydney time is 0.7646 to 0.7683.