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Trump's Challenge to Peddle Tax Plan Pass-Throughs

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Trump faces tax battle, German corporate woes worsen, and Spanish separatism fears grow. Here are some of the things people in markets are talking about today.

Taxing debate

Now that the Republican tax-reform blueprint has been disclosed, the perilous journey from proposal to implementation begins. With little chance of Democrat support in the Senate, the GOP cannot afford to lose more than two of their own members in order to get the bill passed. With economists and Treasury Secretary Steven Mnuchin disagreeing over the deficit impact of the plan, and loopholes that favor the wealthy gaining attention, a smooth ride through Congress is unlikely. 

Corporate woes

It’s been a bad day for two of Germany’s flagship companies, with Deutsche Bank AG’s shares slipping after Fitch Ratings cut the lender’s credit grade one notch to BBB+ -- only three levels above junk. The move comes as Chief Executive Officer John Cryan faces increased skepticism his turnaround plans can succeed. Volkswagen AG’s stock price dropped more than 2 percent after it took a surprise additional charge of 2.5 billion euros ($3 billion) for the third quarter as the automaker continues to deal with the fallout from the diesel scandal in the U.S. The news comes just days after the company’s Scania truck unit was hit with an 880.5 million-euro fine by EU regulators for its part in a price-fixing scandal. 

Europe data

Inflation in the euro-area for September was unchanged at 1.5 percent, according to Eurostat’s flash estimate, lower than economist predictions for a 1.6 percent print. Core inflation, which strips out volatile food and fuel prices, slipped to 1.1 percent. In the U.K., GDP for the second quarter grew an unrevised 0.3 percent, but there was some good news as the saving ratio unexpectedly climbed to 5.4 percent over the period. The resilience of the British consumer could boost speculation that the Bank of England may be on the verge of raising rates for the first time in a decade. 

Markets flat

U.S. stocks rose to record levels ahead of the last trading day of the quarter yesterday, with investors remaining positive about the president’s tax plan. Overnight, the MSCI Asia Pacific Index rose 0.4 percent as it headed for its ninth straight month of gains, while Japan’s Topix index closed 0.1 percent lower. In Europe, the Stoxx 600 Index was unchanged at 5:50 a.m. Eastern Time, and S&P 500 futures slipped 0.1 percent. The U.S. 10-year Treasury yield was stable at 2.310 percent and gold was little changed at $1,288.15 an ounce.

Secession vote

The Spanish region of Catalonia will attempt to stage a separatist referendum on Oct. 1 in defiance of the country’s Constitutional Court and Prime Minister Mariano Rajoy’s government. Catalan President Carles Puigdemont has suggested the separatist-led regional government may declare a split within days of the result. So far, investors have largely shrugged their shoulders at the constitutional crisis, but should the aftermath of the result lead to uncertainty about the country’s future, and protests cause a short-term hit to the economy, then market sentiment could well sour.

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