There’s a modest risk-off trade in the global markets today, pushing Treasury prices higher and equities lower (Nikkei -1.97%, Euro Stoxx -0.68%, S&P 500 futures -0.11%). The main catalysts being touted for today’s market action are 1) potential government shutdown this weekend, 2) the U.S. embassy move to Jerusalem, and 3) some early year-end profit taking given strong 2017 performance in risk markets. The 10-year Treasury yield is down to 2.31% after trading above 2.4% to start the month.

A Politico article released this morning discusses the risks of moving too quickly on tax reform. The article sources tax lawyers and other experts that suggest the current House and Senate versions are “riddled with bugs, loopholes, and other potential problems” that could be “easily gamed” by clever tax professionals. The proposed pass-through tax rate for certain businesses was specifically referenced as a potential issue.  House Ways and Means Chairman Kevin Brady (R-TX) acknowledged these concerns in the article, saying that they are using all feedback to make the bill stronger. Others worried that the process is simply moving too fast to be critical of the many unintended consequences that can arise from such comprehensive legislation. Once the bill is passed, Republicans wouldn’t be able to fix any issues through a simple reconciliation process. The article likened this to the hasty effort from Democrats to pass Obamacare, which was riddled with “scads of legislative snafus” that haven’t been addressed due to Republican obstruction (inferring tax reform could suffer a similar fate). Nevertheless, the White House and GOP leaders appear very motivated to get something passed before Christmas.

Jason Haley
Managing Director, Investment Management Group

12/04Factory Orders-0.40%-0.10%1.40%1.70%
12/04Factory Orders Ex Trans0.80%0.70%1.10%
12/04Durable Goods Orders-1.10%-0.80%-1.20%
12/04Durables Ex Transportation0.90%0.40%
12/04Cap Goods Orders Nondef Ex Air0.30%-0.50%
12/04Cap Goods Ship Nondef Ex Air1.10%0.40%
12/05Trade Balance-$47.5b-$48.7b-$43.5b-$44.9b
12/05Markit US Services PMI55.254.554.7
12/05Markit US Composite PMI54.554.6
12/05ISM Non-Manf. Composite5957.460.1
12/06MBA Mortgage Applications4.70%-3.10%
12/06ADP Employment Change190k190k235k
12/06Nonfarm Productivity3.30%3.00%3.00%
12/06Unit Labor Costs0.20%-0.20%0.50%
12/07Challenger Job Cuts YoY-3.00%
12/07Initial Jobless Claims240k238k
12/07Continuing Claims1919k1957k
12/07Bloomberg Consumer Comfort51.6
12/07Household Change in Net Worth$1698b
12/07Consumer Credit$17.000b$20.830b
12/08Change in Nonfarm Payrolls195k261k
12/08Two-Month Payroll Net Revision90k
12/08Change in Private Payrolls200k252k
12/08Change in Manufact. Payrolls15k24k
12/08Unemployment Rate4.10%4.10%
12/08Average Hourly Earnings MoM0.30%0.00%
12/08Average Hourly Earnings YoY2.70%2.40%
12/08Average Weekly Hours All Employees34.434.4
12/08Labor Force Participation Rate62.70%
12/08Underemployment Rate7.90%
12/08Wholesale Inventories MoM-0.40%-0.40%
12/08Wholesale Trade Sales MoM0.30%1.30%
12/08U. of Mich. Sentiment9998.5
12/08U. of Mich. Current Conditions114.3113.5
12/08U. of Mich. Expectations90.588.9
12/08U. of Mich. 1 Yr Inflation2.50%
12/08U. of Mich. 5-10 Yr Inflation2.40%