Market In A Minute: November 27 - December 1, 2017
Global equities advanced this week, propelled most by the prospect of a US tax overhaul. Lots more mixed in with taxes, including on-again, off-again bumps in the tax-reform road, US Q3 GDP coming in stronger than expected, a North Korean missile launch and Michael Flynn cutting a deal with special prosecutor Mueller (that may threaten the Trump family). As you would expect with all this, the CBOE’s VIX (volatility index) rose about 15%, which is still low historically.
The prospect of tax reform was the major market fuel last week. The Senate passed its tax reform bill in Saturday’s wee morning hours, leaving us anxious to see how markets open on Monday. A nearly 500-page bill resulted from a day of Republican leaders making changes to garner the needed votes. The vote was 51-49, along party lines with the exception of Republican Bob Corker, who cited growing deficit concerns, as the only Republican nay vote.
Our economy grew at a 3.3% annual rate in Q3, up from the prior 3% estimate. Sales of new homes jumped 6.2%, reaching pre-financial crisis levels. Consumer confidence hit a 17-year high on optimistic economic prospects and tight labor markets. Manufacturing showed continued expansion.
Jerome Powell's confirmation hearing for Fed Chair bode well for the market. His comments were in line with current policy – except for being a little more lax on regulation. Fed funds implied probability stood at 100% for a December rate hike at week’s end.
Former National Security Advisor Michael Flynn struck a plea deal with the Special Counsel’s office. Flynn pled guilty to lying to the FBI, agreeing to cooperate with Mueller's investigation. Reports indicated Flynn is willing to answer questions about President Trump, which reignited fears about a potential impeachment.
The European manufacturing PMI hit 60.1, a 17-year high and second highest reading on record. Forward-looking components of the report suggest economic momentum will continue for at least several months. Also positive was a drop in the Eurozone unemployment rate to 8.8%, the lowest level since January 2009.
Brexit moved forward. The UK and EU have a framework for calculating the amount the UK will need to pay the EU for its previous commitments. Estimates vary in the €40 billion–€55 billion range. The UK is attempting to demonstrate that it has made sufficient progress toward settling that issue so other key issues (future trade relationship and the Irish border) can be addressed.
Chancellor Angela Merkel’s chances of forming a stable government without another election rose last week as the result of German president Frank-Walter Steinmeier’s pressure on the Social Democratic Party.
North Korea launched a ballistic missile that landed in the Sea of Japan (in Japan's exclusive economic zone). The total distance the missile flew, meaning vertically plus horizontally, suggested it could reach most points in the US.
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