Daily Comment (November 3, 2017)

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] Happy employment data day!  We cover the release in detail below but the quick read is that the report is relatively weak; payrolls rebounded sharply but below expectations, the unemployment rate fell largely due to a drop in the labor force and wages remained unchanged.  Weather events did affect the data.  The dollar and Treasury yields fell on the news.  Here is what we are watching this morning:

Tax roll-out reception: The GOP tax proposal, also referred to as the “Tax Cuts and Jobs Act,” received mixed reviews following its release yesterday.  As is typically the case with all first iterations of a new tax bill, there are many proponents and detractors alike.  The bill is considered to be generally business-friendly but some notable lobbyist groups have expressed their opposition to it.  The most prominent opponents are small business lobbyists and realtors.  Common critiques of the bill are that it does not do enough to repatriate offshore earnings, hurts real estate prices and does not provide enough help for small businesses.  It is generally perceived to have broad support among the House GOP, but there are some rumblings within the Senate GOP about possible changes to the bill.  Senator Marco Rubio tweeted yesterday that the child tax credits included in the bill are not enough to support middle-class families, while Senator Susan Collins has expressed opposition to the proposed elimination of the estate tax.[1]  We will continue to monitor this issue closely.

Traveling in the Indo-Pacific: Today, the president will start his 10-day trip across Asia, with his first stop in Japan.  While on this tour, the president is expected to discuss matters relating to trade and North Korea’s missile program, the latter being the primary focus.

During the trip, the president will refer to the area as the “Indo-Pacific” as opposed to “Asia-Pacific.”  The term was used by National Security Advisor H.R. McMaster during yesterday’s White House press briefing, during which he previewed the president’s agenda for his trip to Asia.  The term is meant to emphasize that the U.S. commitment stretches beyond the economies of China and East Asia in order to include economies along the Indian Ocean as well.

Japan will likely ask the president for more assurances regarding his commitment to deterring North Korea from Japan and South Korea.  Tensions between the U.S. and North Korea continue to build as Pyongyang accused the U.S. of running a “nuclear strike drill” along the Korean peninsula.  Although the Pentagon has denied the accusation, claiming that the drills were routine, McMaster urged during the White House press briefing that time is running out to address the North Korean situation.

Venezuela debt restructure: Yesterday, Venezuelan President Nicholas Maduro stated that the country will seek to restructure and refinance its debt following a $1.1 billion principal payment to bondholders on Friday.  This move will likely make bondholders anxious as the country has recently struggled to make good on some of its ongoing debts.  Earlier this year, the United States imposed financial sanctions on Venezuela in response to its crackdown protests, which have made it harder for the country to seek other forms of financing.

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[1] https://www.axios.com/child-tax-credit-new-tax-plan-2505451140.html