Fra BNP Paribas:
Most people appear to think most of the US in tax cuts over the next ten years goes to corporates (see poll on my Twitter @Mortimerleepaul).
In fact, the Joint Committee on Taxation reckons that just over USD1.1 trn goes to individuals. Business tax reform costs USD 650bn or so, offset by some USD 320bn extra in taxes from international tax reform, according to the JCT.
Larry Lindsey being touted as possible Fed vice-chair recently denounced JCT assessment of the tax cuts as a ‘fraud. He also criticised their assessment of an “aggressive” Fed response to the cuts. Warned about stock bubble in 96, so equities might be wary about him.
Bond market seems to be waking up to the fact that bigger borrowing and less global QE adds up to higher yields.
The impact of the corporate tax reduction could be adverse for highly leveraged companies, especially if corporate borrowing rates rise significantly. Value of deferred tax liabilities will drop – how will this fall in net worth affect borrowing ability?
Effect of lower tax rates on capital structure of US corporates, willingness to buy back stock by issuing debt?
Catalonia election giving a majority to separatists challenged the consensus view of the outcome and may spell trouble ahead for PM Rajoy.
When eurozone growth is so good, did ECB over-commit when it extended QE until at least September? Especially since its forecasting record is poor – it now sees 2017 and 2018 growth at 2.4% and 2.3%, respectively, whereas a year ago it was projecting 1.7% in 2017 and 1.6% next year.
If ECB needs to adjust its stance given it has pre-committed to QE and has said rate hikes will only come “well after” QE ends, forward guidance will likely be the main tool. Given mixed voices, danger of taper tantrum?
UK growth has clearly slowed, but at 1.7% y/y and 0.4% q/q remains above OBR estimate of potential; unemployment rate still at 4.3%, lowest since 1975.
Potential canaries in the coalmine I am watching as global monetary stimulus gets pared back: Canadian housing, Swedish housing, high-yield bonds, Chinese stocks, some EM debt and currencies, some bubble-like asset price moves.
