Daily Comment (November 1, 2017)

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] Equity markets have been fairly strong following relatively strong earnings and expectations surrounding the FOMC meeting today.  The overnight news was relatively light, but below are a few topics that we are keeping an eye on today:

Return of the ban? Yesterday, a driver in a pickup truck hit and killed several pedestrians along a bike path near the Hudson River in Lower Manhattan.  Mayor Bill DiBlasio has since declared the event an act of terror.  Although there was a written letter in Arabic pledging allegiance to ISIS, authorities are not convinced that the driver had any affiliation with the terrorist group.  President Trump condemned the terrorist attack and pledged to take more action to deter further attacks from happening.  The president has not yet specified what measures he plans to take but, since the driver was from Uzbekistan, the president may revise his travel ban list to include more countries.  This event has not had an adverse effect on markets which suggests no perceived threat to U.S. national security.

Tax reform: Last night, the House GOP decided to delay the rollout of their much-anticipated tax reform bill.  It is currently being held in the House Ways and Means Committee.  It is believed that the bill as it is currently written still does not have enough support.  Yesterday, Bloomberg reported there was a proposal to let the corporate tax rate gradually decline over a five-year period, which would put the corporate tax rate at 20% in 2022.  The president has since come out against that proposal.[1]  In addition, there is growing speculation as to whether the Senate GOP will be able to form a coalition without seeking the help of Democrats; the GOP can only afford to lose two votes in the Senate, and Senators Rand Paul[2] and Susan Collins[3] have expressed their hesitancy for the bill as it is currently constructed.  There is growing speculation that the GOP will not be able to pass tax reform before President Trumps’ Christmas deadline.

Asylum for Catalan separatists? In Spain, Spanish authorities have threatened to issue a European arrest warrant if ousted Catalan President Carles Puigdemont fails to show up to his court hearing.  Earlier this week, Carles Puigdemont and several of his advisers fled to Belgium in order to avoid charges related to the October 1st referendum.  Puigdemont has since stated that he will not return to Spain until he receives “guarantee of a fair trial.”  It has been widely speculated that Puigdemont and his advisers could seek political asylum in Belgium.  In order for Belgium to grant political asylum, it would need to start judicial proceedings to denounce the Spanish government’s crackdown of the referendum, which could be politically tricky given Belgium’s separatist past.  Belgium Prime Minister Charles Michel has claimed that he did not invite the former Catalan leader and would treat him as any other EU citizen.  If Spain were to issue the arrest warrant, Belgium would have up to 60 days after the warrant issuance date to grant asylum.  We will continue to monitor this situation.

FOMC rate decision: The Federal Reserve is expected to maintain current interest rate levels, although there is growing speculation that the Fed could raise rates in December.  Despite weakening inflation, the Fed is likely to point to strong GDP growth numbers as a reason to continue monetary tightening.  Fed chair front-runner Jerome Powell, a supporter of Yellen’s gradual interest rate approach, is expected to adopt a similar interest rate policy if chosen to become the next Fed chair.

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[1] http://www.reuters.com/article/us-usa-tax-trump/trump-says-he-is-not-looking-to-phase-in-corporate-tax-cut-idUSKBN1D02AC

[2] https://www.cnbc.com/2017/10/18/trump-tax-plan-hits-bump-in-senate-as-rand-paul-weighs-no-vote.html

[3] https://www.axios.com/collins-opposes-estate-tax-repeal-cut-to-top-tax-rate-2504006556.html?xrs=RebelMouse_fb&utm_source=facebook&utm_medium=fbsocialshare&utm_campaign=organic