World Week Ahead: US tax reform, jobs

Monday 28th August 2017

The Trump administration’s tax reform plans and the latest US jobs data are expected to top the agenda this week as second-quarter earnings season fades away.

US President Donald Trump will launch a major push for tax reform this week with a speech in Missouri, the Financial Times reported on Friday, citing Gary Cohn, head of the White House national economic council.

“Starting next week, the president’s agenda and calendar are going to revolve around tax reform,” Cohn said in an interview, according to the Times. “He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the US.”

Investors also will eye the ADP employment report on Wednesday, weekly jobless claims on Thursday, and the government's nonfarm payrolls report on Friday.

The latest data on the US labour market arrive after Federal Reserve Chair Janet Yellen struck what was perceived as a dovish tone in a speech at the annual summit of central bankers in Jackson Hole, Wyoming, on Friday.

“Yellen's Jackson Hole speech focused entirely on financial regulation and resilience, and was silent on the economic and policy implications,” according to TD Securities in a note. “By failing to discuss the elephant(s) in the room—inflation and rate normalisation—her comments were taken as dovish.”

The US dollar weakened.

Wall Street welcomed firmer expectations that the next Fed interest rate increase won’t happen until December. The Fed’s open market committee is expected to approve the gradual paring of its US$4.5 trillion balance sheet when it meets in September.

Last week, the Dow Jones Industrial Average rose 0.6 percent, while the Standard & Poor’s 500 Index added 0.7 percent, and the Nasdaq Composite Index gained 0.8 percent.

Despite some increased chatter about a potential market correction, bulls remain in charge.

US Treasuries rose, pushing the yield on the 10-year note two basis points lower to 2.17 percent.

With the 10-year note returning less than 2.2 percent, investors are drawn to stocks, JJ Kinahan, chief market strategist at TD Ameritrade in Chicago, told Reuters.

“You are starting to see stocks hang in there only because everybody is searching for yield,” Kinahan said.

Wall Street’s fear gauge—the CBOE Volatility Index or the VIX—fell 7.8 percent to 11.28 on Friday.

After several weeks of high-profile speeches by Fed officials, officials will be less talkative in the days ahead. Jerome Powell speaks on Wednesday.

Other US economic data scheduled for release in the coming days include reports on the international trade in goods, and the Dallas Fed manufacturing survey, due today; S&P Corelogic Case-Shiller home price index, and consumer confidence, due Tuesday; gross domestic product, corporate profits, and farm prices, due Wednesday; personal income and outlays, Chicago PMI, and the pending home sales index, due Thursday; motor vehicle sales, PMI and ISM manufacturing indices, construction spending, and consumer sentiment, due Friday.

In Europe the Stoxx 600 declined 0.1 percent last Friday, while the euro strengthened.

At the start of the week, Brexit negotiators for the UK and the European Union will gather for another round of talks in Brussels.

(BusinessDesk)

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