Tax System Overhaul, GOP Passes Tax Reform

The House of Representatives passed a bill that will result in the largest overhaul of the U.S. tax system in 31 years, a plan that would reduce the corporate tax rate to its lowest point since 1939 and cut individual taxes for most households by 2018. In addition, the bill will increase the child tax credit , repeal the alternative minimum tax, abolish the estate tax by 2025, and transition the U.S. system to efficiently tax multinational corporations. The plan also would raise taxes on some individuals by removing personal exemptions and deductions: student loan interest, state/ income taxes, and medical expenses. Overall, the bill will aim to reduce federal taxes by $1.4 trillion over the

U.S. Housing Start Growth

U.S. housing starts grew last month to the highest level in over a year, a sign that builders and developers are back on track after hurricanes Harvey and Irma wreaked havoc on residential construction in the Southeast U.S. According to the U.S. Commerce Department, housing starts increased 13.7% from September to October to a seasonally adjusted annual rate of 1.29 million. In addition, residential building permits, a key signal for projected development, grew 5.9% to an annual pace of 1.297 million. Multifamily starts saw a 37% increase and single family starts rose 5.3% from the previous month. October starts for single-family homes in the South are now at the highest level in a decade, i

Emerging Markets and Idiosyncratic Risk

Morgan Stanley is betting on improving performance of emerging markets, citing improving asset valuations and widening rate differentials as the key factors. For the past year, growth and decreasing current account deficits are the drove the emerging markets gains this year. After a good performance for the year, due to underlying confidence in EM reduction in risk factors such as falling commodity prices and reduced anxiety over the outlook for China’s economy, the high-yield currencies of emerging markets are also extremely sensitive to US interest rate hikes. Additionally, there is a multitude of idiosyncratic reasons why assets in the emerging market class have experienced downward press

Emerging Markets and Idiosyncratic Risk

Morgan Stanley is betting on improving performance of emerging markets, citing improving asset valuations and widening rate differentials as the key factors. For the past year, growth and decreasing current account deficits are the drove the emerging markets gains this year. After a good performance for the year, due to underlying confidence in EM reduction in risk factors such as falling commodity prices and reduced anxiety over the outlook for China’s economy, the high-yield currencies of emerging markets are also extremely sensitive to US interest rate hikes. Additionally, there is a multitude of idiosyncratic reasons why assets in the emerging market class have experienced downward press

Volatility in the Junk Bond Markets

Volatility within the junk bond markets has caused US energy giant, NRG Energy, to end a debt sale. In a statement, NRG Energy stated that “borader market conditions” were the reasons for a pulled $870m bond sale late on Thursday and blamed “broader market conditions” for its decision, after the market had lurched lower over the preceding trading days. The next day coal producer Canyon Consolidated Resources became followed suit and also pulled a bond sale due to worries about volatility in credit markets. The two largest junk bond exchange traded funds have fallen to their lowest levels in over seven months with the average high-yield bond dropping by a penny on the dollar. In the past mon

UK Rate Hikes: The Market Pricing Differs from BoE Statements

The UK’s interest rate hike was viewed as a one-time move despite the statements of the Bank of England. The British pound fell and investors viewed the quarter-point rise as a dovish development. Going forward, will markets be swayed by hawkish talk from the BoE? Factors that are depressing the possibility of another rate hike include a slowing economy, Brexit uncertainty and retreating inflation. So, despite Ben Broadbent’s stating, ‘We anticipate a couple more rate rises to get inflation back on track,’ markets are seemingly not pricing in more than two rate hikes. While several investors are expecting additional rate hikes to control the 3% year-on-year inflation figure, the high inflati

Saudi Arabia, OPEC, and Russia: The Conflicts of $60 Crude Prices.

The new political risk from Saudi Arabia that arose from the Crown Prince Mohammed bin Salman detaining several prominent business people within the country, including officials and princes, results in uncertainty for oil investors. Given that Saudi Arabia is the world’s second-largest crude producer and the biggest exporter, oil prices are heavily affected by political developments. Until the smoke clears, the market will continue to put a risk premium on the oil prices. Crude moved past $60 per barrel for the first time in two years due to these developments, and at $70 a barrel the US shale supply would soar; rising oil prices allow shale companies to increase operations. The Energy Infor

US Growth

US data has revealed that the economy has its fastest six-month stretch of growth in three years despite a devastating period of natural disasters. This growth is followed by the 3.1% growth in the Q2, making it the first six-month stretch since 2014 in which US gross domestic product grew more than 3 per cent in consecutive quarters. The 3% growth recorded in Q3 of 2017 was unexpected, economists believed the hurricanes in Texas and Florida to slow down growth and weigh on the US economy. Thee strong growth numbers were derivatives from increasing consumption and investment. In response, the dollar rose 0.4%, reaching its highest level since July. Markets expect the Federal Reserve to be

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