“Trump’s First Major Legislative Win…..”

Trump’s First Major Legislative Win

On Friday President Trump signed the Republican tax overhaul bill giving a major tax cut to US corporations along with a package of temporary cuts to other businesses and most individuals.  Before signing the legislation Trump told reporters, “I consider this very much a bill for the middle class and a bill for jobs.”    Trump’s signature gives the GOP the first major legislative victory since January.  The legislation didn’t score well in national polls, due to concerns about the benefits for corporations and top earners.  However, Trump and other Republicans say average Americans will embrace it.  The bill reduces the corporate tax rate to 21 percent from 35 per cent and cuts the individual tax rates across the board.  It also imposes new limits on deductions used heavily in high-tax states with high home values meaning that some people in those areas will see higher tax bills.  Overall the bill is projected to decrease the federal revenue by almost $1.5 trillion over the next decade although its individual tax cuts are set to expire in 2026 in order to avoid adding the deficit outside that window.  Trump and GOP leaders are expecting the business tax cuts to spur enough economic growth to make up for the loss in revenue.  Economists have however questioned this.  Trump described the plan as beneficial for the middle-class as the bill includes provisions that almost double the standard deduction and expand the child tax credit.  These measures will benefit many families not only the middle class.

US – Bill Passed To Keep The US Government Funded

Congress passed a bill to keep the US government funded until 19 January.  The start to 2018 has a wide range of divisive fiscal and social issues to be faced.   The short term legislation passed on Thursday night includes the $2.85 billion to help fund the CHIP program (Children Health Insurance Program) through the end of March.  The measure will help cover the estimated 1.9 million children across 24 states and Washington DC.  The temporary relief still leaves CHIP and families that rely on it in a state of uncertainty.

Japan

Japan’s best growth acceleration in a decade looks to be stretching into 2018 as data on Thursday shows industrial production marked its first back to back months of increases this year, with 0.6 rise in November following a 0.5 percent gain in October according to the government.   Furthermore, numbers are showing that consumers are also spending more on electronics, cars and fuel.   Retail sales in November increased by 2.2 percent from a year earlier.  A string of data is showing that Japan’s economy is in its best shape in more than a decade.  The jobless rate is at a 24 year low, exports have risen every month this year and business investment is up for four straight quarters and GDP has expanded every quarter for nearly two years.    Meanwhile Japan’s stock market has rallied more than 20 percent this year to reach 26 year highs.  This has also boosted consumer confidence.  The Bank of Japan (BOJ) buys long term government debt to keep the 10 year yields around zero and also buys ETFs which are traded on the stock market, increasing its holdings by around 6 trillion yen a year.  The strength in the economy has spurred debate about when and how the central bank will start easing its aggressive monetary policy that includes massive buying of government bonds, stocks and other assets to keep interest rates low and flood the market with money to push inflation.  The latter has however, remained low with the core consumer price index up 0.9 percent in November far from the BOJ’s target of 2 percent.

China

China’s outstanding foreign debt rose to $1.68 trillion at the end of September from $1.56 trillion at the end of the second quarter, according to the foreign exchange regulator.

Spain – Catalan Situation

Parties that support Catalan independence from Spain won back control of the regional assembly, taking 70 of 135 seats after a record 82 percent turnout.  They got just 48 percent of votes falling short of the majority that would boost their claim to a democratic mandate to break away from Spain.  The vote does not bring real independence any closer than it was at the end of October, when Puigdemont fled for Belgium to escape a Spanish court probe that resulted in some of his allies being jailed.      Meanwhile, Spanish Prime Minister Mariano Rajoy headed to a cabinet meeting on Friday in Madrid and later planned to sit down with his People’s Party leadership with the Catalan independence campaign at the top of his agenda.  President Carles Puigdemont demanded the Spanish government to recognize his victory in Thursday’s regional election and drop an arrest warrant to let him end a self-imposed exile in Belgium and return to power.  Furthermore he also faces major questions about how he can implement his election victory.  Markets have reacted with the yield  spread (which is a measure of the risk of investing in Spain) of Spanish 10 year bonds over comparable German Securities, was up five basis point at 1.10 percent up from a four month closing low on Thursday.  On Friday it increased to as high as 1.12 percent.

Italy – Italy Passes 2018 Budget, Clearing Way For Elections

Italy’s upper house Senate on Saturday gave Parliament the final approval to the government’s 2018 budget clearing the way for national elections expected to be held in March.  The Senate passed the package by a vote of confidence by 140 votes to 97.  The financial law which had passed in the Chamber of Deputies aims to lower next year’s fiscal deficit to 1.6 percent of gross domestic product from a targeted 2.1 percent this year.  President Sergio Mattarella is expected to dissolve Parliament before year end after which the government will set the date of the election.  Italy’s debt is the highest in the Eurozone after that of Greece at just over 130 percent of national output.

Bitcoin

The world’s largest cryptocurrency approached $10,000 last week after selloff entered a fourth day with increasing momentum.    Other cryptocurrencies have also tumbled such as ethereum where it dropped as much as 36 percent and litecoin slumped as much as 43 percent.    Comments by Central Bankers, a decision by litecoin’s founder to sell all his holdings and investor’s wishes to cut stakes before the holiday season fuelled the plunge.  Although bitcoin was not the most volatile cryptocurrency in the past week, it is the largest and shook the world of digital coin-trading on Friday when its intraday plunge reached 30 percent.  This was the steepest dive since 14 January 2015 when its market value was just $2.4 billion.   On Saturday the bitcoin whose market value was about $260 billion rebounded along with most of the major cryptocurrencies, halting a four-day tumble that drew attention around the world to the unregulated $500 billion market.  On Thursday Bitcoin resumed its tumble after South Korea said it was looking into options including a potential shutdown of at least some cryptocurrency exchanges to stop speculation.  Bitcoin fell as much as 9 percent to as low as $13,828 in Asia trading erasing modest gains after the South Korean release.

Commodities – Copper

Copper is on course for the longest run for gains in almost three decades, topping $7,300 a metric ton in London.  This is arising from optimism over increased global demand, supply disruptions in China, including plant halts in China as officials are pressing a battle against pollution.  Furthermore more support came from a weaker dollar.    The three month copper rose as much as 1 percent to $7312.50 on the London Metal Exchange, the highest since January 2014.  According to data compiled by Bloomberg metal is up for a 10^th straight day, heading for the longest winning streak since 1989.  Prices of the metal used widely in power and construction are up 30 percent in the year to date. Other metals such as aluminium have also rallied hitting $2,275 a ton the most since 2012.  Base metals have posted the biggest returns among raw materials in 2017, with copper, aluminium, zinc and nickel leading gains on the Bloomberg Commodity Index.

World Stocks Closer To Year End

The MSCI world equity index which tracks shares in 47 countries has risen about 22 percent this year and looks set for a record 14^th straight month of gains.  The year’s equity rally has been led by the performance in Asia which is on track for its best year since 2009 whereby the MSCI’s index of Asia-Pacific shares outside Japan approaching late-2007 highs.   Copper futures are at new four-year highs for an annual gain of over 30 percent and oil prices are near their 2 ½ year highs.  Traders are anticipating that the equity rally will continue into next year especially if US tax cuts further boost growth in the world’s largest economy.   The dollar index skidded some 0.3 percent against a basket of currencies to a near one month low.

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