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El-Erian Says Trump Tax Plan Part of Design Process

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The Trump trade is back, a Brexit compromise may be possible, and Japan gears up for its electionHere are some of the things people in markets are talking about today.

Trump tax trade

The 10-year Treasury yield rose to 2.348 percent, the highest in two months, as President Donald Trump promoted what he called “the largest tax cut” in U.S. history. The president and Republican leaders put on a show of unity when launching the plan, and stocks surged on hopes that the cuts, which include dropping the corporate rate to 20 percent, will become enshrined in legislation this year. 

Brexit compromise

European Union officials may be willing to bring forward talks on the transition period for the U.K. after Brexit following British Prime Minister Theresa May’s concessions in her Florence speech, people familiar with the matter said. Brexit Secretary David Davis and EU chief negotiator Michel Barnier will outline progress made in the current round of talks in a press conference later today. May, speaking at an event marking 20 years of the Bank of England’s independence, lauded Britain’s economic model as “the greatest agent of collective human progress ever created.”

Japan bulls

Japanese Prime Minister Shinzo Abe officially dissolved parliament overnight, paving the way for the Oct. 22 snap election. The main opposition Democratic Party has decided to merge with Tokyo Governor Yuriko Koike’s Party of Hope, setting up a two-horse race. Investors are confident that the current administration, riding high in the polls, will be returned and are betting on rising equity prices in Tokyo. 

Bonds fall, stocks flat

U.S. stocks approached record highs at the close yesterday while bonds in developed markets slid. Overnight, the MSCI Asia Pacific Index dropped 0.2 percent, while Japan’s Topix index gained 0.7 percent. In Europe, the Stoxx 600 Index was unchanged at 5:50 a.m. Eastern Time and S&P 500 futures were also flat. The U.S. 2-year yield approached 1.5 percent, while West Texas Intermediate was at $52.73 a barrel, the highest level in more than five months. 

Data due…

At 8:30 a.m. initial jobless claims, wholesale inventories and the third reading of U.S. second-quarter GDP are all due. Today’s list of Fed speakers includes Kansas City Fed President Esther George at 9:45 a.m., Federal Reserve Vice Chairman Stanley Fischer at 10:00 a.m., and Federal Reserve Bank of Atlanta President Raphael Bostic at 1:30 p.m. The Bank of Mexico publishes its  rate decision at 2:00 p.m.

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