Friday February 10, 2017 - 22:00:07 GMT
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New Trump Tax Plan Impacts Markets
John M. Bland, MBA
Communication Strategy Matters New U.S. President Trump has been working hard to try control the narrative about his administration. He faces a hostile press and therefore must use other vehicles to get his message out to the electorate. His preferred communication has been social media and short snippets to the press at his frequent meetings with outside visitors to the White House. One technique he has been using is to change the subject when he is under assault for one item by making bigger news on another. Participants in the financial markets should become aware of this technique because what the President says can impact the markets profoundly.
"Phenomenal" Tax Announcement Mr. Trump stirred up the markets Thursday with a comment at a breakfast meeting with airline CEO's that he is going to make a "phenomenal" tax announcement in the next two or three weeks. Markets responded positively to the news mainly on the PROMISE of action on taxes, not the actual event. His snippet did not include any details. We had to wait until later in the day for his staff to flesh out what he meant. We are learning that he was referring to what is described as a "comprehensive tax plan". Trump knows that he can have a more significant impact on economic growth through the tax system than by tinkering with Obamacare, increasing infrastructure spending or by immigration changes. There is talk that he discovered that he was in danger of becoming bogged down in Obamacare and immigration. Dealers realize that tax reform will take time, but there is a hope now that the chronology of what he hopes to accomplish has changed. Markets will remain happy a long as they see progress on tax reform being made.
The Trump tax story saw a sudden halt in the decline in the yield on the 10-yr note. It climbed to above to 2.40%, vs 2.33% on Wednesday's close. Equities got new support from the item and the USD gained. The risk in trading on this news is that markets could become frustrated if it starts to appear that tax discussions are starting to get bogged down.
EU Politics and Brexit In Europe, The focus of activity this week has started to turn towards several key upcoming elections in Europe (Netherlands, France, Germany and Italy). Key issues remain the economy and immigration. Their outcomes could result in a change in the social and economic status quo on the Continent and these uncertainties have been causing worry in the financial markets. The failure of opinion polls (e.g. Brexit and Trump) to accurately measure voter sentiment beforehand has many on edge. Early in the week, some attributed a rise in fixed income prices (lower yields) in the period to a flight to safety due to European political uncertainty. Of course, Trump (temporarily) changed that.
The final U.K. Brexit Bill has been passed resoundingly in Commons by 494-122. This was as expected. It now goes onto the House of Lords where it is expected to be approved easily. This was a "clean" bill with no amendments.
Upcoming Yellen Testimony The week ahead on Tuesday and Wednesday, sees testimony on the economy by Fed Chair Yellen before Senate and House Committees. At the present time, markets are running one in four odds in favor of a Fed rate hike in March, and near-100% odds in favor of a June move. These appearances will give Yellen an opportunity to change market sentiment, especially about March, if she is so inclined.
WEEKLY Forex Economic Calendar:
13 Feb Mon
No Major Data
14 Feb Tue
09:30 GB- CPI
10:00 DE- ZEW Survey
10:00 EZ- GDP
13:30 US- PPI
15:00 US- Yellen Testimony
15 Feb Wed
09:30 GB- Employment
13:30 US- Retail Sales
13:30 US- CPI
14:15 US- Industrial Production
15:00 US- Yellen Testimony
15:30 US- EIA Crude
16 Feb Thu
03:00 AU- Employment
13:30 US- Weekly Jobless
13:30 US- Housing Starts/Permits
17 Feb Fri
09:30 GB- Retail Sales
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland co-founder www.global-view.com
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