With Europe Close Traders Focus on U.S. Markets

After Congress passed the U.S. Tax Cut and Reform Bill, the focus will now shift to deliverables from Corporate America as a down payment on the gifts bestowed upon them if they fully embrace the balance sheet sea change. Considerable attention and energy will now shift toward figuring either how to avoid or how to leverage all the measures put in place, though it will create an industry boom for tax attorneys, who won’t rest until well into early 2018.  The huge corporate tax cut from 35% to 21%, should incent corporations to come to the United States to set up shop and also incent companies who have been running operations overseas to come back home.

Trading was virtually nonexistent with most of Europe, the U.K., and several Asian markets still on holiday. JGB yields closed marginally higher, with this week’s supply also weighing on Treasuries, with shorter notes underperforming. U.S. equity futures are modestly lower, in sync with the 0.2% drop in the Nikkei. Today’s U.S. calendar includes the October Case-Shiller home price index, Richmond Fed and Dallas Fed indices.

NY Fed’s NowCast Q4 GDP model eased to 3.90% from 3.98% previously, but remains well above the Atlanta Fed’s GDPNow estimate, which was earlier cut to 2.8% from 3.3%. The Nowcast for Q1 2018 was also lifted slightly to 3.17% from 3.15% previously. The NY Fed pinned the slightly softer Q4 forecast on sub-median durable goods and downward revisions on data earlier in the week. At Action, our Q4 forecast remains at 2.5%, below both, though extra economic lift from tax cuts and potential infrastructure spending initiatives into 2018 may tilt risk to the upside near-term.

U.S. Home Sales Continue to Impress

The 17.5% November U.S. new home sales surge to a 10-year high of 733k beat estimates by 98k, but it followed 78k in downward revisions over the prior three months, hence leaving a moderate net upside surprise beyond the push back of sales from the August-October period into November. There was a bold climb for new home sales in the hurricane-impacted south, where we saw a 14.9% November surge, after a -1.9%  October figure, and prior gains of 16.0% in September and 1.9% in August.

There should be an upward impact in the west from the California fires, where there was a 31.1% November surge. New home sales have risen 171% from the 273k record-low in February of 2011, alongside smaller cyclical climbs of 43% for pending home sales and 68% for existing home sales from lows in 2010.

Michigan sentiment fell to a downwardly-revised 95.9 from 98.5 in November and a 13-year high of 100.7 in October, leaving Michigan sentiment below the previous 13-year high of 98.5 from last January. All the confidence surveys have strengthened sharply in 2017, despite the moderation for some measures from Q1 peaks. For other surveys, the IBD/TIPP index fell to 51.9 from 53.6 in November but a lower 50.3 in October, versus a 56.4 cycle-high in February.