Trump finally got a win of sorts. However, in the dictum of the comment, “It ain’t over ’til the fat lady sings”, that’s where the tax bill is at present. You see, the bill that the Senate progressed has to be reconciled with the Senate proposal before being signed off by the President. It is a win of sorts of course but it does come with some collateral damage if passed.

R&D looks likely to be a major casualty. Without R&D, companies in technology, manufacturing and especially pharma go the way of the dodo. They go broke. For them the tax cut becomes an issue of whether to pass the differential on, or reinvest in outcomes where the chance of success is unknown. That’s an easy choice for a CEO, pass the difference on.

The other issue that Trump has looming is the debt ceiling which looks likely to be triggered this Friday. This could make Friday interesting as no doubt the fiscal hawks will be looking to extract euphemistically their pound of flesh. No one knows what deals have been made as yet. However, we can expect fireworks on Friday. Whether we do or not is another matter. McConnell has come out fighting already, so there obviously are concerns internally.

As far as the market is concerned, it’s the fear of missing out that is now driving investors’ choices. The Friday deadline is at the forefront of thought for investors and investors will be quick to sell should there be any noise relating to a shutdown of Government.

At this stage, munis look vulnerable. Market pundits suggest that the munis market could shrink in size by 20-30% as the tax advantages that munis enjoy are no longer able to be applied. This would affect infrastructure such as sports stadiums, airports and roads. However, those wealthy investors in high-tax states would look to munis that have tax free status as the only way they can reduce their taxable incomes.

And in a far- reaching bill that has a significant impact on all Americans, you will soon be able to cross all 50 state lines with a hidden gun. This is a Federal law proposed by the NRA and it is interesting because it violates all 50 states rights to impose their own laws. This is a wonderful piece of legislation.

The 1st Amendment has now become dead and been buried by its major sponsor of 1st Amendment rights, the NRA. One can now safely carry a concealed gun in NYC without fear of prosecution should this Bill be passed.

On Friday, the market had a wild side. The S&P fell some 1.5% on news that Mueller had pierced the White House inner circle. However, once the news of the Tax Bill being passed, the S&P quickly recovered.

Treasuries rallied on the Flynn news with 10 years falling.  The bond market, however, appears to have only a couple of tightenings factored in between now and May 19. The Fed Funds rate currently is expected to go no higher than 1.8%. The chances of a tightening next week is about 94%. Two Fed Governors have warned the Government over the flattening yield curve.  Bullard and Kaplan are concerned that aggressive hikes in rates would harm the economy.


Equities: The S&P 500 fell 0.2%. The S&P rose 1.4% over the week. The Stoxx 600 fell 0.7%.

Currencies: The Bloomberg Dollar Spot Index was fell 0.3%. The yen rose 0.4%.

Bonds: the 2-year rose to close at 1.786. The U.S. 10-year closed at 2.36% a fall of 5bp. The 30-year closed at 2.758 %. The 2/10 closed at 58.8, the 2/30 at 98.7 bp and the 10/30 closed at 38.80 bp. There was a sharp flattening of the curves on Friday. The European 10-year benchmark closes were, gilts closed at 1.225%, bunds at 0.298% and OAT’s 0.447%. A lower than expected inflation number resulted in yields across the eurozone tumbling.

Commodities: Gold rose 0.5% and WTI rose 1.7%.

Aussie Market Today.

Aussie bonds will be mixed. The news out of the U.S. should result in some buying of bonds.  However, the lead is a bit tenuous. Given the eurozone rallied, the Aussie market will probably look to take the direction without conviction until the trend is confirmed.

Equity markets should hold steady to slightly down on the day.

Demand for solid investment grade credits look likely to continue as the hunt for higher yielding assets continues to gather pace. With the equity market rallying, the outlook for credit remains very positive.