Daily Commentary BY THE CURVE TEAM –

US Tax Reform Back In Focus

23rd of August, 2017

Markets seem to have got a little bit excited overnight as Trump’s political agenda could be making some inroads. Confidence around US tax reform was lifted, whilst strong data out of Canada could impact the near term outlook for interest rates.

After some time on the sidelines, US tax reform has been thrust back into the spotlight overnight.  The USD rallied as markets seemed to get a sense of hope that Trump and the newly named “Big 6” were making headway into bringing tax back into focus leading into the Autumn session. The market appears optimistic that what is produced is hopefully an improvement from the six paragraph framework released in July.

Sticking offshore, strong retail sales data out of Canada has brought the concept of further rate hikes back into focus. Core retail sales for June were up 0.7% in June after the 0.1% decline seen in May. While the likelihood of a rate hike in September still being priced at 30%, the strong result certainly would have contributed to the jump in the likelihood of a October hike, lifting to around 80%.

We are set to hear from Fed dove Robert Kaplan overnight, it is expected that he will continue to urge patience around rate hikes, while the market hopes he will give further insight into the timing of the Fed balance sheet reduction. Domestically, skilled vacancies are out today and markets are expecting the labour market strength to continue.

Oliver Parsons

Client Relationship Officer