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Trump plan to test Congress on deficit
-- U.S. President Donald Trump on Wednesday proposed slashing tax rates for businesses and on overseas corporate profits returned to the country in a plan greeted as an opening gambit by his fellow Republicans in Congress. The Trump administration touted the president's blueprint - which also calls for raising standard deductions for individuals, repealing inheritance taxes on estates and simplifying tax returns - as a landmark proposal just days before Trump marks his 100th day in office on Saturday. But while Republicans have long eyed tax cuts and the party controls the House of Representatives and the Senate, Trump's proposal may be unpalatable to party fiscal hawks. It lacks plans for raising new revenue and could potentially add billions of dollars to the federal deficit
The plan was unveiled at the White House by Treasury Secretary Steve Mnuchin and Trump economic adviser Gary Cohn. Democrats and fiscal-hawk Republicans will be concerned about how much Trump's proposals would cause the deficit to balloon. To minimize that impact, Republicans will rely heavily on "dynamic scoring." This is a controversial economic modeling method that attempts to predict economic growth and new tax revenues resulting from tax cuts. "The overall economic plan consists of massive tax cuts and tax reform, regulatory relief and renegotiating trade deals, and with that we will unlock the economic growth that’s been held back for too long in this country,” Mnuchin said. See full story.
Equities rise on Trump tax hopes, France
-- Equity markets continued their advance on Tuesday and a gauge of world stocks notched a record for a second straight session, spurred by speculation about U.S. tax reform and relief at French election results. Wall Street built on gains in the prior session, with the Nasdaq Composite index breaching the 6,000 mark for the first time. Recent opinion polls have centrist Emmanuel Macron, who won the first round of the French presidential election, with a comfortable lead over far-right, anti-EU candidate Marine Le Pen in a May 7 run-off vote.
Safe-haven assets such as gold and the Japanese yen retreated, while the yield gap between French and German short-term government bonds, a closely watched measure of political risk in the euro zone, hit its lowest in almost three months. Bets on clarity regarding the tax code helped boost U.S. stocks, according to Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. With concern over French elections on the wane, investors turned their focus to corporate earnings and U.S. President Donald Trump's promise to announce "a big tax reform and tax reduction" on Wednesday. See full story.
French vote triggers relief rally
-- U.S. stocks rallied Monday, with major indexes advancing 1% in a broad rally after a strong showing by centrist Emmanuel Macron in the French presidential election, which averted fears of a euroskeptic-only runoff. The Dow Jones Industrial Average jumped 226 points, or 1.1%, to 20,774. The S&P 500 added 25 points, or 1.1%, to 2,373. Perceived safe-haven assets like gold, the Japanese yen, and U.S. Treasurys all fell on the day.
Macron came in first in the first round of the French presidential voting with 23.9% of the vote, ahead of far-right euroskeptic candidate Marine Le Pen with 21.4%, and the two will now face off in the final round May 7. A poll late Sunday from Ipsos/Sopra Steria showed that Macron would likely win that runoff by 62% to 38%. Conservative François Fillon and Socialist Benoît Hamon—the mainstream candidates defeated in the first round—both threw their support behind Macron. The support is seen as fending off Front National leader Le Pen, who has called for scrapping the euro and exiting the European Union, a prospect seen as hugely destabilizing for the region. See full story.
Stocks slip on French election
-- Wall Street edged lower in early afternoon trading on Friday as investors held off from making risky bets ahead of the first round of the closely contested French presidential election. Centrist Emmanuel Macron is leading most opinion polls for Sunday's election and is expected to contest a second-round run-off with Marine Le Pen, head of the anti-European Union and anti-immigrant National Front."Although Macron has been labeled as favorite to become the next French President, an unexpected Marine Le Pen victory could deal a symbolic blow to the unity of the European Union and ultimately create a tidal wave of risk aversion," FXTM analyst Lukman Otunuga said in a note.
After a two-week losing streak, major indexes are on track to post weekly gains following Thursday's rally, which was driven by Treasury Secretary Steven Mnuchin's comments that the Trump administration would unveil a tax reform plan very soon. A steady stream of strong earnings through the week continued to bolster market sentiment. Of the 95 companies in the S&P 500 that have reported earnings through Friday morning, about 75 percent have topped expectations, according to Thomson Reuters data, above the 71 percent average for the past four quarters. Overall, profits of S&P 500 companies are estimated to have risen 11.2 percent in the quarter, the best since 2011. See full story.
France’s election could spark turmoil
-- With only a few days to go before Sunday’s first-round presidential election, the polls are showing a nail-bitingly close race between four candidates, setting the scene for what could be a shake-up in European financial markets next week. Two anti-European Union candidates have a serious chance of making it into the final runoff round on May 7, raising fears this could be the beginning of the end for the eurozone. “This remains an open contest and the result could yet serve up a far bigger blow for the European project than we saw with Brexit,” said Tony Cross, market analyst for TopTradr, in a note. Usually a French general election doesn’t present a make-it or break-it moment for the entire eurozone, but this time its different.
After a race full of surprises, a surge in the polls by far-left, euroskeptic Jean-Luc Melenchon has again reminded investors of the sweeping anti-establishment sentiment grabbing Europe and the U.S. at the moment. Far-right, anti-EU candidate Marine Le Pen is also doing well in the polls and currently looks like she’ll get one of the two spots in the runoff. The big question is who she’ll face in the second round. “Investors (and French voters) are getting worried about a ‘nightmare’ scenario in which Le Pen faces Mélenchon on 7 May, leaving them with a hard choice between two anti-globalization, anti-EU and pro-Russia candidates,” strategists at Citigroup said in a note. See full story.
Dollar strengthens against yen
-- The dollar advanced on Wednesday against the euro and the yen after Treasury Secretary Steven Mnuchin assured the public that President Donald Trump is “absolutely not” trying to talk down the greenback. The ICE U.S. Dollar Index, a popular gauge of the dollar’s strength against a basket of six rivals, climbed 0.2% to 99.68, while the WSJ Dollar index, which gauge’s the dollar’s strength against a broader basket of rivals, rose 0.2% to 89.67. Mnuchin’s comments, which appeared Wednesday in a transcript of an interview he gave to the Financial Times, were a response to President Donald Trump’s remark, which appeared last week in The Wall Street Journal, that the dollar is getting “too strong.”
Neil Mellor, a currency strategist at BNY Mellon, said the back-and-forth is another example of how Trump’s advisers try to clarify and refine some of his more controversial remarks. Typically, the U.S.’s position on the dollar is articulated by the Treasury. “[Mnuchin’s] job is, as always, to try and impose a suitable filter [on Trump],” Mellor said, adding that investors shouldn’t take Trump’s words as gospel. The U.S. dollar surged after Trump’s upset victory in the Nov. 8 U.S. election, but has since retraced much of that move. Mellor noted that, despite the currency’s weakness since the beginning of the year, futures-market positioning suggests appetite for the greenback remains robust. Anxieties surrounding the upcoming first-round vote in the French presidential election receded somewhat on Wednesday as polls appeared to affirm establishment candidate Emmanuel Macron’s frontrunner status. Investors appetite for the euro and European stocks has been dampened by the popularity of far-right candidate Marine Le Pen and leftist Jean-Luc Mélenchon, who are both polling within the margin of error.
Pound jumps 1.6% on early UK election
-- The British pound soared on Tuesday, climbing more than 1% after U.K. Prime Minister Theresa May unexpectedly called for an early general election that she says is necessary to strengthen Brexit negotiations. The prime minister announced plans for an early general election on June 8. “The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit. That would be welcomed by financial markets,” said Luke Bartholomew, investment manager at Aberdeen Asset Management.
The pound hit $1.2763 as details emerged, up 1.6% from the $1.2565 level it traded at late Monday. The spike took the currency to its highest level since December. May’s Conservative party currently has a parliamentary majority of 17. Since taking office last summer, the prime minister has consistently ruled out a snap election. As recently as last month, her office said an early vote was off the table and there wasn’t going to be an election until the planned ballot in 2020. See full story.
Dollar weakens on Korean tensions
-- The dollar weakened on Monday as tensions between the U.S. and North Korea continued to escalate following an unsuccessful missile launch ordered by the country’s leader, Kim Jong-Un, over the weekend. The ICE U.S. Dollar index, a measure of the greenback’s strength against a basket of six rival currencies, softened 0.4%.
North Korea paraded its military weaponry, including a long-range ballistic missile, through the streets of Pyongyang on Saturday to commemorate the birth of the country’s late founder, Kim Il Sung. But the next day, it attempted to fire a ballistic missile only to have it explode shortly after takeoff, prompting warnings from several U.S. officials, including Vice President Mike Pence. See full story.
Wholesale inflation falls in March
-- U.S. inflation at the wholesale level fell in March for the first time in seven months, owing to lower costs for services such as investment advice as well as cheaper fuel for cars and homes. The producer price index slipped 0.1% last month to mark the first decline since August, the government said Thursday. Economists surveyed by MarketWatch had predicted no change in the PPI.
Still, some inflationary pressure is building for the first time in several years and prices could rise even higher. Over the past 12 months wholesale costs have risen 2.3%, the biggest increase in five years. Just one year ago wholesale prices were basically flat. Prices have risen largely because of rebound in oil prices from last year’s lows, though the cost of many goods and services have also been creeping higher. The Federal Reserve is on high alert for any sign inflation is quickening, a course that could spur the central bank to lift U.S. interest rates more aggressively. Yet while inflation is moving higher there’s little evidence it’s going to increase rapidly. See full story.
Investors favor safety as fears persist
-- Safe-haven gold and U.S. Treasuries prices held steady on Wednesday while U.S stocks edged lower as investors fretted about global geopolitical risk and the upcoming U.S. corporate earnings season. U.S. Treasury yields were little changed as demand tied to worries about Syria and North Korea offset investor selling ahead of a 30-year bond auction. Oil prices reversed earlier gains after a report on U.S. crude stockpiles suggested the market was still heavily supplied. On Wall Street, defensive sectors were among the brightest spots in keeping with preferences for safety.
U.S. President Donald Trump said in a tweet on Tuesday North Korea was "looking for trouble" and the United States would "solve the problem" with or without China's help the day after Pyongyang warned of a nuclear attack on the United States at any sign of American aggression. However Chinese President Xi Jinping on Wednesday stressed the need for a peaceful solution for the Korean peninsula on a call with Trump. Russian President Vladimir Putin on Wednesday said trust had eroded between the United States and Russia under Trump as Moscow delivered an unusually hostile reception to U.S. Secretary of State Rex Tillerson in a face-off over Syria. See full story.
‘Fear gauge’ touches 5-month high
-- A popular measure of Wall Street fear touched its highest level since just after President Donald Trump’s surprise November election five months ago. The CBOE Volatility Index VIX, known as Wall Street’s fear gauge, rose to a peak of 15.88, marking its highest level since Nov. 11, three days after Trump’s electoral triumph, when it hit a high of 16, according to FactSet data. The VIX spiked to a high of 23.01 on Nov. 4. The gauge, which measures Wall Street expectations for large swings in the S&P 500 30-days in the future, was most recently trading up about 6% at 14.87, as stocks came off their lows (see chart below):
The jump comes amid growing political tensions around the globe, which has sent assets perceived as risky lower and pushed investors into those viewed as havens, like gold and U.S. government bonds. Growing tensions in Asia, centered on North Korea’s recent missile tests, and the Middle East, where the U.S. launched an airstrike in Syria late Thursday and has hinted at the potential for more actions, have investors on edge. Wall Street also has been shaken by the French presidential elections ahead of first-round voting on April 23. The probability is growing that far-right anti-euro candidate Marine Le Pen could face leftist candidate Jean-Luc Mélenchon in the second round on May 7. Both anti-establishment candidates threaten to disrupt the European Union and the euro. See full story..
Inflation, retail sales face chill
-- The pace of hiring in the U.S. backed off in March after strong gains in the first two months of the year. Now the same thing could happen to inflation and retail sales. A trio of tools the government uses to measure the cost of living for American households are forecast to decline or remain flat in March. The reason: a sharp drop in the price of oil. “Inflation pressures remain fairly tame,” said Richard Moody, chief economist at Regions Financial.
In March, U.S. retail sales are forecast to be flat. The good news is that consumers didn’t have to spend as much on gasoline as prices fell. The downside is that purchases of new cars and trucks appear to be leveling off after years of soaring sales. The Federal Reserve, for its part, now has to chew over the temporary slowdown in job creation and a potential pause in inflation before it determines when to raise interest rates again. The bank has raised the cost of borrowing in the U.S. twice since December as part of an effort to make sure the economy doesn’t overheat and ignite a unwanted bout of inflation. See full story.
Jobs growth slumps to 98,000 in March
-- The U.S. created just 98,000 new jobs in March to mark the smallest gain in almost a year, a sign the labor market is not quite as strong as big hiring gains earlier in 2017 suggested. The unemployment rate, meanwhile, fell to 4.5% from 4.7% and touched a nearly 10-year low despite the slowdown in hiring. The U.S. had added more than 200,000 jobs in January and February, but hiring in weather-sensitive industries such as construction was helped by unusually high temperatures in the dead of winter.
The U.S. had added more than 200,000 jobs in January and February, but hiring in weather-sensitive industries such as construction was helped by unusually high temperatures in the dead of winter. Most of the hiring was concentrated in white-collar professional jobs, health care and oil production. Other sectors reported little or no hiring. A softer round of hiring was also accompanied by a more modest increase in pay last month. See full story.
Investors fret over Trump-Xi meeting
-- It takes a lot to overshadow a monthly unemployment report, but investors appear to be as focused on the start of a two-day meeting between President Donald Trump and Chinese President Xi Jinping that gets under way Thursday, as they are on this week ‘s eagerly anticipated March jobs data. It appears Trump will head into the meeting ready to take China to task over trade policy, while Xi is expected to offer, if not concessions, a grab bag of investment promises and other measures that Beijing hopes will be enough to at least ratchet down tensions. The danger is that the meeting ends in acrimony, potentially spooking financial markets
The reason why should be clear to anyone with the faintest memory of Trump’s presidential campaign, in which bashing China as a ruthless competitor willing to manipulate its currency to steal U.S. markets and jobs was often a focus. While a full-on public spat over the yuan could be the worst case, signs of tension at the conclusion of the meeting could hurt overall risk appetite and would be particularly negative for “high-beta” currency pairs such as the Australian dollar/U.S. dollar, euro/U.S. dollar, and possibly even dollar/yen, wrote Kathy Lien, managing director of FX strategy at BK Asset Management, in a note. A sudden bout of market jitters would also be expected to be a positive for traditional havens, analysts said, like gold and Treasurys. See full story.
Private sector adds 263,000 jobs in March
-- Private-sector employment continued at a torrid pace in March, according to data released Wednesday morning, registering the second-strongest reading in more than two years. Employers added 263,000 private sector jobs last month, up from a revised 245,000 in February, ADP Inc. reported. The increase in March was above expectations. Economists polled by Econoday had forecast a March gain of 170,000 jobs compared with an original estimate of 298,000 for February.
President Donald Trump has claimed credit for the acceleration in the pace of job growth this year, as businesses look at the possibility of tax cuts, deregulation and infrastructure spending. Job gains have averaged 252,000 in the first three months of 2017. “The gains are broad based but most notable in the goods producing side of the economy including construction, manufacturing and mining,” said Mark Zandi, chief economist at Moody’s Analytics, who helps prepare the report. See full story.
Oil gains ahead of U.S. data, dollar slips
-- Oil prices rose to a near one-month high on Tuesday on expectations of lower U.S. crude inventories, while the dollar eased as investors remained cautious ahead of meetings between U.S. President Donald Trump and Chinese President Xi Jinping. The upcoming French presidential election also kept investors cautious as political risk concerns remained active ahead of the Trump-Xi meetings this Thursday and Friday. U.S. stocks edged higher, following modest gains in Europe, with the energy and industrials sectors helping buoy Wall Street and European shares.
Global and U.S. crude oil benchmarks rose to their highest since March 8, having recovered on expectations the Organization of the Petroleum Exporting Countries (OPEC) and other producers would cut output. "OPEC compliance is still holding better than we expected with next week's release of various monthly agency reports likely to confirm," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note. The safe-haven yen advanced to a one-week high against the dollar and a 4-1/2-month peak versus the euro ahead of the Trump-Xi summit at the U.S. president's Mar-a-Lago resort in Florida. See full story.
Manufacturing slows to a 6-month low
Source: Business Insider
-- The Institute for Supply Management and Markit Economics on Monday released reports on surveys of US manufacturers conducted during March. Markit's final purchasing manager's index fell to 53.3, below the forecast for 53.5 according to Bloomberg. According to Markit, manufacturing growth slowed to a six-month low. New orders came in at the slowest pace since October.
"The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam," said Chris Williamson, the chief business economist at IHS Markit. "The survey data have acted as a reliable advance guide to official data in the past, and in March indicate a slowing of output growth to an annualized rate of around 2%." The ISM's index, was 57.2, down from 57.7 in February and in line with expectations. New orders and production grew at slower rates, while employment improved. See full story.
Consumer inflation tops 2%
-- The rate of inflation in consumer goods and services topped 2% in February for the first time since 2012, a trend that could lead to higher borrowing costs for households and businesses unless it abates soon. The rate of inflation, as measured by the government’s PCE index, is now above Federal Reserve’s 2% long-term target, a potential trigger for more increases in interest rates in the months ahead. The central bank lifted rates earlier this month owing to an improved economy and higher inflation. The PCE index is the preferred tool for the Fed to measure inflation.
Consumer spending, meanwhile, showed a scant 0.1% increase last month, the Commerce Department reported Friday. Economists polled by MarketWatch has forecast 0.2% gain. Americans spent more on drugs, health care and travel, but less on new cars and utilities during the second warmest February in 123 years. The slowdown in spending for the second straight month — abetted by tardier than usual tax refunds — is another chink in official scorecard for the economy, known as gross domestic product. Less spending by consumers is likely to keep GDP on the low side in the first quarter. Economists polled by MarketWatch forecast 1.7% growth. See full story.
Dollar rises on GDP data
-- The dollar rose on Thursday, boosted, particularly against the euro and Japanese yen, by a positive read on U.S. economic growth. The latest data on fourth-quarter U.S. gross domestic product showed the U.S. economy expanded at a 2.1% annualized pace in the last three months of 2016, above the initial estimate of a 1.9% annual rate. The report was the latest economic indicator to point to an improving economy, following reads on consumer confidence and the labor market. The number of Americans applying for first-time jobless benefits fell last week, but not by as much as some economists had expected.
The ICE U.S. Dollar Index, a measure of the buck’s strength against a basket of six rivals, was up 0.5%, trading near its high of the session, as well as its highest level in about two weeks. Neil Mellor, currency strategist at BNY Mellon, said that while the GDP data had helped reassure dollar bulls, “the jury is still out as we come to grips with [President Donald] Trump’s policy programs.” See full story.
U.S. pending home sales surge
-- Contracts to buy previously owned U.S. homes jumped to a 10-month high in February, pointing to robust demand for housing ahead of the busy spring selling season. The report on Wednesday from the National Association of Realtors suggested higher home prices and mortgage rates were having little impact on the housing market for now, underscoring the economy's resilience despite an apparent slowdown in growth in the first quarter. The NAR said its Pending Home Sales Index, based on contracts signed last month, surged 5.5 percent to 112.3. That was the highest reading since April and the second best showing since May 2006.
"This bodes well for home sales this spring," said Misa Batcheller, an economic analyst at Wells Fargo Securities in Charlotte, North Carolina. Contract signing last month was likely boosted by unseasonably warm temperatures. The gains reversed January's 2.8 percent drop. Pending home contracts become sales after a month or two, and last month's surge implied a pickup in home resales after they tumbled 3.7 percent in February. Economists had forecast pending home sales rising 2.4 percent last month. Pending home sales increased 2.6 percent from a year ago. See full story.
Consumer confidence hits 16-year high
-- U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy was regaining momentum after faltering at the start of the year. The economy's strengthening fundamentals were underscored by other data on Tuesday showing further increases in house prices in January. Robust consumer confidence and rising household wealth from the home price gains suggest a recent slowdown in consumer spending, which has hurt growth, is likely temporary.
"We think that real consumption will firm moving forward," said Daniel Silver, an economist at JP Morgan in New York. "It looks likely that the recent spending data were held down by some temporary factors related to unusually mild weather and a delay in tax refund issuance." The Conference Board said its consumer confidence index jumped 9.5 points to 125.6 this month, the highest reading since December 2000. Consumers' assessment of both current business and labor market conditions improved sharply in March. See full story.