Markets Respond as Trump Finally Releases His Tax Reform Plan

The Trump Administration and U.S. Republican Party finally released its tax plan framework on Wednesday after a lengthy delay. The plan includes softer tax treatment for American companies to bring back profits they have held abroad, a process known as repatriation that is boosting shares of companies like Apple and Microsoft.

The tax reform framework would reduce the corporate rate to 20 percent, as many expected. It also proposes to create three individual tax rates and double the standard deduction.

Economic News

In U.S. economic news, Durable Goods Orders showed a 1.7 percent increase in August. Traders had priced in a 0.3 percent increase. The data was supported by a 0.9 percent rise in Non-defense capital goods. Core Durable Goods Orders came in at 0.2 percent, meeting the estimate.

Pending Home Sales posted disappointing results with a -2.6 percent reading. Traders were looking for a read of -0.5 percent.

U.S. Treasury Markets

U.S. government debt prices lost ground on Wednesday as Treasury yields continued to rise in response to comments from Federal Reserve Chair Janet Yellen on Tuesday. Yellen warned during a speech on Tuesday that it could be risky moving “too gradually” with interest rates in the U.S.

U.S. Equity Markets

The three major U.S. stock indexes posted strong gains on Wednesday in response to the release of the Trump Administration’s tax plan framework.

The Dow Jones Industrial Average ended its four-day losing streak with a solid gain. The rally was primarily supported by a rise in Goldman Sachs which was supported by the prospect of higher interest rates.

The benchmark S&P 500 Index hit an all-time high, but the buying was not enough to produce a new record close. The rally was supported by strong gains in financial stocks and information technology stocks. Higher interest rates negatively impacted utilities and real estate investment trusts.

Gold

Gold prices hit a one-month high on Wednesday amid heightened expectations that the U.S. Federal Reserve will raise interest rates before the end of the year. Rising U.S. Treasury yields helped make the U.S. Dollar a more attractive investment which lowered demand for dollar denominated gold.

The main catalyst for the weakness in the gold market was hawkish remarks by Fed Chair Janet Yellen earlier in the week. On Tuesday, Yellen said it would be “imprudent” to keep rates on hold until U.S. inflation hits 2 percent. Gold traders interpreted this to mean the central bank will pull the trigger and raise its benchmark interest rate in December 2017.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil closed mixed on Wednesday as traders responded to overbought technical conditions and a surprise fall in inventories as reported by the government.

According to the U.S. Energy Information Administration, U.S. crude oil inventories fell 1.8 million barrels the week-ending September 22. Traders were looking for a 3.4 million-barrel build.

The EIA news provided some support for WTI crude oil, but gains were limited by an unexpected rise in gasoline stocks. Distillate stocks were down by less than anticipated.

Also pressuring prices and limiting gains was an increase in U.S. crude production. The EIA reported that production rose to 9.55 million barrels per day (bpd) last week, higher than before Hurricane Harvey hit the Texas Gulf Coast area.

Expensive Brent crude oil also drove up demand for cheaper U.S. crude oil. Exports hit a record 1.5 million barrels per day last week.