Italian Banks’ Future Hangs on Sunday’s Referendum Italy votes on a constitutional referendum on Sunday. A ‘no’ vote could derail Banca Monte dei Paschi’s rescue plan, which in turn could complicate Italy’s efforts to clean up its banking sector.
Rising Rates Could Be a Chinese Phenomenon, Too With inflation reviving in China, authorities may have no choice but to stand aside in the face of rising bond yields
(…) The rebound in Chinese consumer prices remains mild for now, but it goes beyond commodities. Core consumer-price inflation, which excludes energy and food, ticked up to 1.8% on the year in October, tying July’s figure for the strongest reading since January 2014. Credit growth, including local government bonds, is in the midteens, slower than the second quarter’s torrid pace but not by much. (…)
Yields on 10-year government bonds are up 0.2 percentage point since late October to 2.9%. Bank of America Merrill-Lynch strategists are forecasting a further rise to 3.4% next year as investors consider higher rates globally, a weakening yuan and higher domestic inflation. (…)
Rising consumer prices make it less likely that the People’s Bank of China will act aggressively if bonds do sell off further next year. (…)
Can All Markets Be Wrong About Trump? Yes History suggests the initial reaction by investors after a U.S. election isn’t always the right one
(…) The danger is that investors are responding to their own prejudices, then receiving reinforcement from one another. While the market is internally consistent, that isn’t enough if it has misjudged the big picture—as it often does on the economy, and even more so on presidents. (…)
But history suggests markets aren’t that good at judging presidents. And that presidents just aren’t that important to stock prices. The worst performance of U.S. stocks between Election Day and Inauguration Day came ahead of Franklin Roosevelt, Richard Nixon and Barack Obama’s first terms and Lyndon Johnson’s 1964 election, according to calculations by Birinyi Associates. Yet after FDR and Mr. Obama took office, the market boomed, while it did perfectly well under Nixon and LBJ.
The market wildly misjudged the potential of Herbert Hoover. His election-to-inauguration stock price jump hasn’t been bettered, but the 1929 crash was on his watch and no president since has overseen such poor returns. Dwight Eisenhower was rare, being welcomed with strongly rising stock prices which carried on up once he took office. (…)
- With likely across-the-board Democratic opposition, it leaves little margin for error in the Senate. “Chances for Republican unity were enhanced considerably when the Trump team scaled back its tax cut plan late in the campaign to bring it closer to the blueprint drawn up by House Speaker Paul Ryan. There remain important differences on offsetting items to reduce the deficit impact, but chances for a significant tax cut are pretty good.”
- Republican House conservatives aren’t nearly as enthused as Mr. Trump seems to be about using deficit spending to improve infrastructures “—a reality he seemed to acknowledge in an interview with the New York Times last week when he said his infrastructure plan is “not a very Republican thing.””
- This is the big potential showstopper for the Trump stimulus. “The Committee for a Responsible Federal Budget estimates that Trump’s plans would add $5.3 trillion to the federal debt over the next decade. House Republicans, in particular, don’t like that kind of number, and that has the potential to mess with both tax-cut and infrastructure plans. Look for a moment of truth in mid-2017, when a Republican president and a Republican Congress have to agree on a plan to raise the federal debt ceiling or face a market-rattling default on American debt.”
Bank of Canada Governor Stephen Poloz suggested that continued uncertainties surrounding Canada’s economic outlook have set the bar high for an interest rate change, as the central bank approaches its deliberations for next week’s rate decision. (…)
“When there’s that much uncertainty, it takes a big shock – like the oil price shock – to make it certain that you’re knocked off your target,” he said. (…)
Big debate going on on the potential impact. This from The Daily Shot:
According to Citi, “S&P 500 companies pay an effective rate closer to 27% but one can back into pretax income and calculate that each percentage point of tax rate would be the equivalent of $1.75 per share of S&P 500 EPS”. A corporate tax cut will clearly be a tailwind for US equities.