- Stocks regroup after late-day selloff. (10:21am ET) U.S. equities are up modestly in early trading after slipping from near-record highs to finish slightly lower on Wednesday. The reversal came following the release of President Trump’s tax reform outline, which was light on details. S&P 500 sector performance was mixed, with healthcare (+0.5%) and consumer discretionary (0.5%) among the leaders, while consumer staples (-0.8%) and tech (0.3%) lagged. Overseas, central banks are in focus with the Bank of Japan maintaining status quo on monetary policy as it offered upbeat comments on the economy; the Nikkei finished 0.2% lower in the session. European stocks (STOXX 600 -0.2%) are broadly lower in midday trading after the European Central Bank also left policy unchanged, while Sweden’s Riksbank surprised with an extension to its bond-buying policy – to little effect. Elsewhere, WTI crude oil ($48.60/barrel) is sliding more than 2%, COMEX gold ($1264/oz.) is little changed, as is the 10-year Treasury yield at 2.31%.
- No big surprises in tax proposal but some notable omissions. There were no big surprises in the tax plan released by the Trump administration yesterday but there were several notable omissions, including immediate capital expensing, the border adjustment tax, net interest deductibility of corporate debt, and infrastructure spending. We believe some form of accelerated depreciation to stimulate capital expensing has a good chance of making it to the final bill, but we believe the other omissions (which we think will stay omitted), suggest tax reform will not be bipartisan. That means the path forward would be reconciliation (50 votes in the Senate) and limited deficit impact; which, in turn, would mean the proposal will almost certainly have to be scaled back. Bottom line, nothing we learned yesterday moves us away from our view that the corporate rate will end up at 20-25%, not 15%, with a year-end timetable a bit more likely than early 2018.
- Weekly jobless claims rise more than expected. Data released this morning on initial jobless claims for the week ending April 22 showed the number of people seeking unemployment benefits rose 14,000 to 257,000, above consensus forecasts of 242,000. It should be noted that claims from the prior week may have been slightly depressed due to the Easter holiday and contributed to the increase. The four-week moving average of claims fell 500 to 242,250 pointing toward a gradual tightening in the labor market, though continuing claims rose 10,000 to 1.99 million. Overall, the data is still consistent with a healthy labor market and continued economic growth.
- Durable goods orders weaken. Durable goods orders rose for the third month in a row in March, but decelerated to 0.7% from an upwardly revised 2.3% growth in February. While the headline number missed consensus expectations of 1.1% growth, the miss was more than offset by the strong upward revision to February’s data. Shipments of non-defense capital goods ex-aircraft, which flows directly through to gross domestic product (GDP) as business spending, rose 0.4% in March after rising 1.1% in April. While improving global growth may be creating a positive backdrop for accelerating business spending, policy uncertainty around tax reform and trade may be leading businesses to delay some decisions about major capital investments despite a largely pro-growth policy agenda in Washington.
- Trade deficit widens in March. The U.S. trade deficit widened in March to $-64.8 billion, but there was some good news beneath the headline. The data topped consensus expectations of $-65.3 billion, while February’s data saw a positive revision, flipping exports from contraction to expansion for the month. A stabilizing dollar (approximately flat over the last year) may continue to remove a headwind for U.S. trade looking forward. On the downside, both imports and exports fell, pointing to potential temporary weakness in overall trade levels, and aggressive trade policy remains a risk.
- Industrials a nice surprise so far this earnings season. The sector has produced the biggest upside surprise of all 11 S&P sectors and has, thus far, seen its estimates for the second half of 2017 rise. Overall, a solid 77% of S&P 500 companies have beaten Thomson consensus estimates on the bottom line, and 63% for revenue, both well above recent averages. First quarter earnings for the broad index are tracking to a 11.8% year-over-year increase, nicely above the 10.2% consensus estimate as of April 1. Forward estimates have held up relatively well, especially for the second half of 2017-those estimates are unchanged-when some policy impact could begin to be realized. Following yesterday’s results, about 320 S&P 500 companies are still left to report first quarter results.
- Durable Goods Orders (Mar)
- Eurozone: Consumer Confidence (Apr)
- ECB Interest Rate Decision
- Japan: CPI (Mar)
- GDP (Q1)
- UK: GDP (Q1)
- Eurozone: CPI (Apr)
- EU Leaders Summit
- China: Mfg. & Non-Mfg. PMI (Apr)
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