Tax cuts, Bitcoin, and mortgage rate news

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Published Date 12/11/2017

Quiet this morning in very early trade. The rate markets a little better, stock indexes generally unchanged at 7:30 AM ET.

This week has a number of key issues; tax cut bill progress, treasury auctions, Bitcoin trading, inflation data; AND the FOMC on Wednesday. The Fed is widely expected to increase the Federal Funds rate on Wednesday by 0.25% taking it to 1.50%.

Bitcoin futures eased back from an initial surge of almost 22% to trade up 13% on Monday, in an eagerly awaited U.S. market debut that backers hope will confer greater legitimacy on the volatile cryptocurrency and lead to its wider use. The January contract up 13% while the February contract was up 18%. Given the volatility of the coin, the margin rates are 30% to 35% compared to 3 and 4% for most futures. Gains or losses in bitcoin trading will be paid or received in dollars, not coins.

Tax cuts—some headlines: In the Senate version, investors would lose the ability to choose which shares they can sell to reduce a position. Instead, investors selling partial stakes in a company would have to unload their oldest shares first, a process known as selling on a “first-in, first-out” basis. Some concern that before the end of the year if that stays in the bill, investors may sell stocks to avoid that. It doesn’t pertain to the firms that manage mutual funds and exchange-traded funds—only to their individual clients. This one likely to be changed as the two bills merge into one; according to Congressional leaders and Pres. Trump, by the end of this year. Recent surveys imply the normal everyday consumer believes that the tax bill won’t help them and only help the “rich.”

The FOMC meeting is more about the policy statement than the anticipated increase in the Federal Funds rate. How the statement is phrased, markets will look for clues about what may be expected in 2018. The next meeting after this one is at the end of January. That will be the last for Yellen and there is no press conference scheduled as of yet.

Nothing has changed from a technical perspective. As long as the 10 is between 2.30% and 2.40% our models and most all market momentum oscillators will remain in neutral conditions. Whether or not the bond market at the long end (mortgages) depends on the tax cuts and how equity market move between now and when a tax bill emerges and how investors’ continued penchant to bet on economic growth keep climbing. Short-term rates have increased, but with little to no inflation increase and the need to protect other investments, the 10s and 30s will hold well. Later this afternoon, $20B of 10s will be auctioned by Treasury.

This Week’s Calendar:

Monday
- 10:00 am JOLTS November job openings, expected at 6.10 mil from 6.093 mil in October (as reported 5.996 mil)
- 11:30 am $24B 3 yr. note auction
- 1:00 pm $20B 10 yr. note auction, re-open of 10 issued in November
Tuesday
- 7:00 am NFIB small business optimism (104.02 from 103.80)
- 8:30 am November PPI (+0.4%, core +0.2%)
- 10:00 am FOMC meeting begins
- 1:00 pm $12B 30 yr. bond auction, re-open of 30 issued in November
- 2:00 pm November Treasury budget (-$134B)
Wednesday
- 7:00 am weekly MBA mortgage applications
- 8:30 am November CPI (+0.4%, core +0.2%)
- 2:00 pm FOMC policy statement
- 2:30 pm Janet Yellen press conference
Thursday
- 8:30 am weekly jobless claims (239K +3K) November retail sales (+0.3%, ex autos +0.7%) November export and import prices (exports +0.3%, imports +0.7%)
- 10:00 am October business inventories (-0.1%)
Friday
- 8:30 am December Empire Sate manufacturing index (-0.1 from 19.4)
- 9:15 am November industrial production and capacity utilization (production +0.3%, manufacturing index +0.3%; capacity utilization 77.2% from 77.0% in Oct)

Source: TBWS

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