Tax cuts are being priced in, with stock market index futures rallying on the news.
Dow futures are up some 80 points this morning after early on Wednesday morning the Senate passed the Tax Reform bill in a party-line vote, and is now set to become law after a follow-up vote in the House and Trump's signature some time on Wednesday afternoon. The good news is that the biggest political drama of 2017 will then be over. The bad news is that once the bill becomes law, the market will no longer be able to "price it in" every single day as it has for the past year.
As reported overnight, and as expected, the Senate approved the tax-cut legislation in a 51-48 party line vote, bringing President Donald Trump to the brink of his first major legislative victory. The bill now moves to the House of Representatives for a final vote Wednesday. With corporate and individual tax rates set to drop, the measures are largely anticipated to add to growth over the next year or two, though they will also swell the budget deficit.
And while S&P 500 futures extended modest gains on the bill news, they have so far fallen short of yesterday’s high, in somewhat tepid reaction to the passage of the U.S. tax bill in the Senate, suggesting there is only so many times an endlessly regurgitated piece of news can be "priced in for the first time." MSCI’s world equity index was little changed and holding just below record highs hit on Monday.
Overnight, European bonds were mixed as U.S. Treasury yields edged lower after yesterday’s jump, sparked by hawkish comments from central bankers...
... and recovered from a brief dip following the Senate tax news, while the U.S. dollar comes under renewed pressure versus its G-10 peers as investors await a second House vote on the bill.
“Last week the reaction of bond markets was one of ambivalence about the likelihood of these measures getting passed,” said Michael Hewson, chief market analyst at CMC Markets in London. “However, U.S. yields have jumped sharply higher in the last two days as the prospect of higher inflation and growth prompted some positioning adjustments in anticipation that the measures, if passed, could prompt conditions that might see rates have to rise faster than expected next year.”
In global equities, the feel-good factor from U.S. tax reform faded in Europe on Wednesday, with stocks struggling for traction after a mixed session in Asia and the dollar trading little changed.
Most European stocks weakened, led by Spain ahead of a regional Catalan election on Thursday. Basic resources sector among the biggest gainers as industrial metals rebound in London trading. German debt again leads core euro-area government bonds lower, with notable underperformance in the front end driving yield curve bear-flattening.
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