Today was a momentous day. At least that’s what is hoped. The GOP are now looking to attempt and progress their Tax Bill after an earlier Committee passed the initial reading 12/11. This tight voting trend is likely to continue for the passage of the Bill with the GOP requiring at least 50 votes.
McConnell is meeting now with the President and so too should the minority House Speaker and Minority leader. The only problem is that Trump ridiculed both earlier in the day using his favourite medium Twitter. Both have now declined to meet with Trump this afternoon.
It appears as though Trump cannot help himself in ridiculing his opposition when in tough negotiations. As a tough landlord, that may work. However, in the minefield of politics, which has become even more polarised since Trump became President, it is causing a vast chasm.
The GOP is also now starting to become concerned about the rapidly approaching vote on the debt ceiling due 8 December. As the GOP made the debt ceiling a blood sport during Obama’s tenure, it’s hard to see how the Democrats will pass anything without at least some mud being flung.
McConnell was insistent earlier today when he was describing the importance of raising the ceiling and how the troops had to be paid. In all likelihood, the debt cap will be raised. Markets will breathe a sigh of relief and we will rally into the Holiday Season, at least that’s the belief.
We all know that Trump is quick to take the accolades for jobs growth. In fact, he often rolls out the job creation mantra. So what is the evidence? The evidence is that in the red states job creation is actually falling and so too those looking for work as they have become dismayed by the lack of jobs prospects.
Where the jobs growth has occurred is in the blue states by the coast where technology and environmental jobs have been growing rapidly. These jobs pay better and require higher education standards.
However, don’t believe what I have just said, here are some facts. The participation rate in red states fell to 62% in September from 62.6% in April. The blue states saw a small gain from 63.8% to 63.9%. Industries in the states are driving jobs growth. Red states jobs tend to be in manufacturing and retail, whilst the lucrative jobs in blue states are in technology and life sciences.
The red states main employers are in heavy industries which are currently downsizing and automating where they can, and jobs prospects look dire. Labour force participation is declining in blue states and this trend has become sharper in recent months. The unemployment rate in red states has declined to 4.2% in September from 4.8%.
But all this is a play on statistics. Tennessee, for instance, has an unemployment rate of 3%. However, a slowing economy in the state has seen many workers leave the workforce with the participation rate plummeting. Almost 65% of the state’s population were working in 2007; in 2017 that number is 61%. The unemployment rate is falling because people are no longer looking for work, they have given up. Automation has taken many jobs and with poorer education there are fewer opportunities.
Job creation is growing in the blue states and that’s a function of education and opportunities. Neither of which Trump has had anything to do in that respect.
However, Trump’s nominee to the Chair of the Fed did gain some valuable points today with the Senate Confirmation Committee. Powell said that banks required no further increased regulation, as regulations were tough enough. This was enough to drive the equity market forward. The suggestion of a rate hike in December comes as no surprise as the market already has the probability of a hike factored in by 93%.
The markets took heart from the passing of the Bill in the Budget Committee and the Tax Bill will now go to the Senate, Thursday. Funding the deficit remains a thorny issue. However, markets focussed on the possible passage of the Tax Bill and the benefits of a tax cut. Markets have forgotten the tantrums of a few years ago about the increasing deficit and how it will be funded and both markets staged a rally.
The point of all of this is that a tax reduction won’t spur growth unless money is invested to create jobs. Many jobs are being lost and education is the key to finding a better job.
The equities market hit new highs whilst bonds bobbled around the 2.31 %to 2.33% levels.
Equities: The S&P 500 rose 0.9%. The Dow rose 1.09%. The Stoxx 600 rose 0.6%. Financials were big winners today.
Currencies: The Bloomberg Dollar Spot Index gained 0.1%. The euro fell 0.3%.
Bonds: the 2-year rose to close at 1.75. The U.S. 10-year closed at 2.33% a slight fall in yield. The 30-year closed at 2.765 %. The 2/10 closed at 58.3, the 2/30 at 101.5 bp and the 10/30 closed at 43 bp. The European 10-year benchmark closes were, gilts closed at 1.25%, bunds at 0.336% and OAT’s 0.51%.
Commodities: Gold rose about 0.1% and WTI fell 0.2%. Copper fell 1.9%. Nickel fell 1.9% on concerns over weak Chinese demand and increased supplies from Indonesia.
Cobalt appears to be the metal of choice for 2018. Cobalt is used in electrical vehicles. As production of electric vehicles increases, so too will the demand for cobalt. Cobalt is an essential component in the batteries of EV’s. Most cobalt comes from the Democratic Republic of Congo, which raises significant concerns for suppliers and users given the problems in the Congo region.
Aussie Market Today.
Aussie bonds should be steady. There may be a flight to bonds following the recent launch of a missile by North Korea. Tensions have certainly ratcheted up. However, this is more a nuance now rather than a concern. Expect a small rally if there is no major chest beating.
Equity markets will continue to push ahead and continue the rally.
Geopolitical tensions have risen however the markets have seen missile launches before and probably will treat the recent action by the North Koreans as an irritant.
Demand for solid investment grade credits look likely to continue as the hunt for higher yielding assets continues to gather pace. There a few new issues on the books at present and these should meet demand. Spreads look likely to grind tighter.