WSJ/Richard Rubin & Nick Timiraos
President Donald Trump called for deep reductions in business tax rates and major changes to the individual tax system in a bid to reinvigorate his economic and legislative agenda as he nears the 100-day mark of his presidency.
…Mr. Trump is also proposing a 35% top tax rate for individuals, down from today’s 39.6% rate but above the 33% rate he backed during the campaign. Lower brackets would be set at 10% and 25%, and the standard deduction for individuals would be doubled.
The corporate tax rate would drop to 15% from 35%, and U.S. companies would owe little or no tax on their future foreign profits. The tax rate on business income reported on individual returns would also drop to 15% instead of being taxed at individual tax rates.
Expect investors to zero in on what the White House has to say about corporate taxes — widely expected to be cut to 15%, as will the top income-tax rate. There’s wariness about just how much POTUS can achieve, given the pushback over health care, and there are worries about a potential government shutdown wreaking havoc in the near term.
…There’s no doubt in Michael O’Rourke’s mind which way the dice will fall. The JonesTrading strategist is convinced the tax announcement will be an “unrealistic, massive disappointment.”
“It will be hard (likely impossible) for the president to get his own party to approve massive unfinanced corporate tax cuts, let alone the Democrats,” he tells clients. “Many politicians in Washington want to see the president fail. The more he promises and raises expectations, the more likely it is that he will.”
Less than a week before the federal government is scheduled to shut down absent a funding bill, the White House’s battle lines remain fuzzy.
…Hours after Trump touted the importance of building a wall, a White House official signaled later Monday that the President won’t insist on that funding in a spending bill to keep the government running past Friday. The official said that even some funding for “border security” could satisfy the President at this point, with the expectation that wall funding would come in future spending bill negotiations.
AP, via BusinessInsider/04-24/17
French presidential candidate Marine Le Pen has announced that she is temporarily stepping down as head of her National Front party.
Monday’s move appears to be a way for Le Pen to embrace a wide range of potential voters ahead of the May 7 runoff between herself and Emmanuel Macron, the independent centrist who came in first in Sunday’s first round.
“Tonight, I am no longer the president of the National Front. I am the presidential candidate,” she said on French public television news.
Politico/Rachael Bade, Burgess Everett & Kyle Cheney/04-23-17
President Donald Trump and Congress are on a collision course over government funding this week, as the White House demands money for a border wall with Mexico and Democrats vow it will never see a penny.
But just five days out from a government shutdown, Trump appears headed for disappointment. Democrats are signaling they’re unlikely to cave, and Hill Republicans are already pressing the administration to fight another day.
Centrist Emmanuel Macron has gone through to the second round of the French election, where he will face far-right leader Marine Le Pen.
Mr Macron, a former banker, is seen as a political newcomer – and ran without the backing of an established party.
After topping Sunday’s vote, he is now favourite to win the run-off on 7 May.
It is the first time in six decades that neither of France’s main left-wing or right-wing parties has had a candidate in the second round.
FT/Michael Stothard, Anne-Sylvaine Chassany & Harriet Agnew/04-21-17
The murder of a policeman in the centre of Paris has dominated the final day of France’s volatile presidential election campaign, fuelling security fears and sparking concern that undecided voters would be influenced by the terror attack.
…Bernard Cazeneuve, the prime minister, called on the French people not to let the attacks shift their vote, saying they should “not succumb to fear, manipulation, division”. He added that “nothing must hamper this democratic moment, essential for our country”.
MarketWatch/Mike Bird & Christopher Whittall/04-19-17
With the start of the French election just days away, investors are contemplating their nightmare scenario: a choice between far-left and far-right candidates.
In recent days, a surge in opinion polls has placed Jean-Luc Mélenchon, a left-wing firebrand who promises higher wages and fewer working hours, as a potential candidate to move past this Sunday’s first round of voting. That could set up a second-round vote in May 7 with Marine Le Pen, an economic nationalist who wants to pull France out of the euro.
…A runoff between Ms. Le Pen and Mr. Mélenchon “would be a disaster for France…[and] a disaster for Europe,” said Patrick Zweifel, chief economist at Pictet Asset Management.
Under that scenario, investors would dump the debt of France and of weaker European economies and send the euro sharply lower, analysts say.
PG View: Apparently some people are thinking about this possibility . . .
CNN/MJ Lee, Deirdre Walsh & Lauren Fox/04-20-17
Top House Republicans may be nearing a significant breakthrough among some key players on efforts to repeal and replace Obamacare, one month after a Republican health care bill was pulled from the House floor.
The leader of the conservative House Freedom Caucus, North Carolina Rep. Mark Meadows, and the head of the moderate Tuesday Group, New Jersey Rep. Tom MacArthur, are working toward a deal that could bring 18 to 20 new “Yes” votes from the conference’s conservative wing, according to a source familiar with the talks. But it’s not clear there would be enough votes in the broader GOP House conference to pass the bill.
PG View: Stocks seem to like this news as it fosters some hope that the broader Trump agenda has not stalled completely.
Reuters/Sudip Kar-Gupta & Sarah White/04-14-17
France’s presidential race looked tighter than it has all year on Friday, nine days before voting starts, as one poll put all four main candidates within touching distance of the two-person run-off round.
The Ipsos-Sopra Sterna poll for daily Le Monde showed centrist Emmanuel Macron and far-right leader Marine Le Pen tied on 22 percent each in the April 23 first round, with the far-left’s Jean-Luc Melenchon and conservative Francois Fillon on 20 and 19 percent respectively.
That 3 percentage point gap among the top four was within the poll’s margin of error, suggesting the election is wide open.
President Donald Trump has signaled his preference for a weaker dollar and low interest rates. He may end up with neither if the U.S. economy continues to recover and he delivers on his ambitious agenda of tax cuts and infrastructure spending.
…The bigger question is how Trump can coax the dollar lower and still promise to inject fiscal stimulus, Setser said. “Historically, a bigger fiscal deficit has put upward pressure on the dollar.”
…”I don’t see why the president shouldn’t be allowed to talk about this,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics. “The strong-dollar policy has outlived its usefulness.”
Federal Reserve Chairwoman Janet Yellen is the dove that President Donald Trump needs to achieve his economic goals, central bank experts said Wednesday as they contemplated the apparent reversal in his stance.
In an interview with the Wall Street Journal, Trump said he had respect for Yellen and said she was “not toast” when her term helming the central bank ends next year.
“I do like a low-interest rate policy, I have to be honest with you,” Trump said in the interview.
AP/Josh Boak & Stephen Ohlemacher/04-10-17
President Donald Trump has scrapped the tax plan he campaigned on and is going back to the drawing board in a search for Republican consensus behind legislation to overhaul the U.S. tax system.
The administration’s first attempt to write legislation is in its early stages and the White House has kept much of it under wraps. But it has already sprouted the consideration of a series of unorthodox proposals including a drastic cut to the payroll tax, aimed at appealing to Democrats.
Some view the search for new options as a result of Trump’s refusal to set clear parameters for his plan and his exceedingly challenging endgame: reducing tax rates enough to spur faster growth without blowing up the budget deficit.
U.S. House of Representatives Speaker Paul Ryan said on Wednesday that tax reform will take longer to accomplish than repealing and replacing Obamacare would, saying Congress and the White House were initially closer to agreement on healthcare legislation than on tax policy.
“The House has a (tax reform) plan but the Senate doesn’t quite have one yet. They’re working on one. The White House hasn’t nailed it down,” Ryan told an audience in Washington.
“So even the three entities aren’t on the same page yet on tax reform,” he added.
PG View: Another reason for those long stocks to be worried that the “reflation trade” is in trouble.
Republicans in Congress are pushing back against a proposal from President Donald Trump to tack funds to pay for a new wall on the US-Mexico border on to stopgap spending plans as they seek to avert a government shutdown after April 28.
While Mr Trump has asked for a $33bn increase in defence and border spending as part of a deal that will keep the US government funded beyond April, lawmakers fear that his demands could force a government shutdown as Democrats refuse to accept Republican proposals.
Britain’s departure from the European Union is an “historic moment from which there can be no turning back”, Theresa May has told MPs.
The prime minister said it was a “unique opportunity” to “shape a brighter future” for the UK.
She was speaking after Britain’s EU ambassador formally triggered the two year countdown to the UK’s exit by handing over a letter in Brussels.
Politico/Kyle Cheney, John Bresnahan & Rachael Bade/03-24-17
Facing a growing rebellion within his own ranks, House Speaker Paul Ryan pulled the Republican Obamacare replacement plan from the House floor on Friday just before a scheduled vote.
The decision is a staggering defeat for Ryan and President Donald Trump in their first attempt to partner on major legislation and fulfill a seven-year Republican promise to repeal Obamacare. It comes a day after Trump issued an ultimatum to House Republicans to vote for the bill or live with Obamacare.
Bloomberg/Billy House, Sahil Kapur & Anna Edgerton/03-24-17
House GOP leaders aren’t confident they have enough votes to pass their embattled health-care bill, according to a senior congressional aide, and are already considering what to do if the measure is blocked before a do-or-die vote hours away.
House Speaker Paul Ryan arrived at the White House Friday to brief President Donald Trump ahead of the vote. Vice President Mike Pence canceled a trip to Arkansas to be in Washington for the vote, a White House official said.
The Trump administration is doubling down on its demand that House Republican leaders hold a vote Friday on their embattled health-care bill without any changes and with an influential GOP member saying he’s not sure they have the votes.
Politico/Kyle Cheney, Rachael Bade & John Bresnahan/03-24-17
President Donald Trump’s ultimatum to Republicans to overturn the Democratic health care law they’ve been campaigning against for years heads to the House floor Friday for a momentous showdown that will test the GOP’s ability to govern.
And no one, not even the people in charge of counting the votes, can say what will happen.
Bloomberg/Luke Kawa, Sid Verma & Felice Maranz/03-22-17
Analysts are zeroing in on the House of Representatives vote on the American Health Care Act as a linchpin for President Donald Trump’s ability to push through pro-economic growth policies — and the market’s ability to cling to a faltering reflation trade.
A House divided over the repeal and replacement of former President Barack Obama’s Affordable Care Act — enshrined as the Trump administration’s top legislative priority — faces an uphill battle, reckon Wall Street analysts. Failure to reform could extend the sell-off that pushed the S&P 500 lower by drop more than 1 percent Tuesday for the first time since Oct. 11 as investors pared back bets that the administration will spark growth with tax cuts and infrastructure spending.
Thursday’s vote may be a “key litmus test” for the administration, said TD Securities fixed income strategists led by Gennadiy Goldberg, arguing that its failure in the House would spark “a significant risk-off event.”
PG View: Gold tends to shine in “risk-off” events.
FT/Sam Fleming and Shawn Donnan/01-17-17
Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies.
On Monday the president-elect appeared to break from the longstanding “strong dollar” policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. “It’s killing us,” he said in an interview with the Wall Street Journal.
PG View: Let’s be honest, our so-called “strong dollar” policy has been a farce. The greenback is in long-term secular decline, like pretty much every other fiat currency. Only within the last several years has the dollar really appreciated; largely as a result of divergent monetary policy. Those gains are eroding the competitiveness of U.S. corporations, which will likely put trade policy high on the Trump administration’s agenda. Speaking in Davos, an advisor to the President-elect, suggest Mr. Trump is likely to tear-up the rulebook on trade.
Financier Anthony Scaramucci, an adviser to Donald Trump, has been speaking at the World Economic Forum in Davos, Switzerland.
He said President-elect Trump is likely to tear up the old rulebook of how trade deals are done and although he wants a strong relationship with countries like China, is seeking changes to what he called “asymmetrical deals” that have been struck in recent decades.
PG View: That ought to shake things up globally . . .
Theresa May has said the UK “cannot possibly” remain within the European single market, as staying in it would mean “not leaving the EU at all”.
But the prime minister promised to push for the “greatest possible” access to the single market following Brexit.
…And Mrs May promised an end to the UK’s “vast contributions” to the EU.
But Labour said there were “enormous dangers” in the prime minister’s plans.
PG View: Sterling rebounded, encouraged by Ms. May’s assurances that Britain was not turning inward and that Parliament would get to vote on any deal stuck with the EU.
Financial Times/Gillian Tett/12-30-16
“Most notably, 2016 was the year when western markets were rocked by political shocks almost as startling as anything seen recently from the emerging markets world. In 2017 investors will probably confront even more political risk in the “developed” world that will make asset values look more volatile.
…The coming year could be equally unpredictable. France, Germany and the Netherlands will hold elections, just as support for populist candidates is swelling. Theresa May, UK prime minister, is embarking on Brexit negotiations, creating more uncertainty; and markets are waiting nervously to see what Mr Trump does (or does not) do in office, amid a host of conflicting signals.”
PG View: It would seem that the heightened political risks — and myriad attendant risks that come along with such a condition — would significantly enhance the appeal of a safe-haven, hard asset such as gold.
17-Nov (WSJ) — New House Speaker Paul Ryan struck a confrontational stance with the Obama administration Tuesday, setting the stage for showdowns over domestic spending and national security matters as Congress works to wrap up business for the year.
Mr. Ryan, speaking at The Wall Street Journal CEO Council annual meeting, said a spending bill needed to avoid a government shutdown in December must include Republican policy measures, injecting fresh drama into the year’s final budget fight.
He also forcefully warned President Barack Obama against using executive action to close the detention center at Guantanamo Bay, Cuba, and transfer its detainees to the U.S.
The Wisconsin Republican didn’t explicitly suggest government operations could lapse when funding expires on Dec. 11, but he didn’t rule out such a possibility. He said Republicans will force Mr. Obama to accept some conservative provisions, known as “riders,” in the sweeping spending bill.
PG View: In the wake of the latest suspension of the debt ceiling, somebody needs to address spending and the mounting government debt. The omnibus spending bill will have to be passed by December 11 to avoid a government shutdown and it looks like t’s shaping up to be contentions. That deadline is less than a week before the next FOMC meeting.
02-Feb (Financial Times) — Greece’s radical new government unveiled proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders.
Yanis Varoufakis, the new finance minister, outlined the plan in the wake of a dramatic week in which the government’s first moves rattled its eurozone partners and rekindled fears about the country’s chances of staying in the currency union.
…But there is still deep scepticism in many European capitals, in particular Berlin, about the new government’s brinkmanship and its calls for an end to austerity policies.
02-Feb (AP, via Miami Herold) — President Barack Obama sent Congress a record $4 trillion budget Monday that would boost taxes on higher-income Americans and corporations and eliminate tight federal spending caps to shower more money on both domestic and military programs. It would provide middle-class tax relief and fund an ambitious public works effort to rebuild aging roads and bridges.
Obama’s budget, which will set off months of wrangling in Congress, proposes spending $4 trillion — $3.999 trillion before rounding — in the 2016 budget year that begins Oct. 1. That’s a 6.4 percent increase over estimated spending this year, projecting that the deficit will decline to $474 billion.
30-Jan (Reuters, via BusinessInsider) – Greece’s government will not cooperate with the EU and IMF mission bankrolling the country and will not seek an extension to the bailout program, its finance minister said on Friday.
Jeroen Dijsselbloem, head of the euro zone finance ministers’ group who is in Athens for talks with the new government, said the two sides would decide what would happen next before the program ends on Feb. 28.
“This platform enabled us to win the confidence of the Greek people,” Finance Minister Yanis Varoufakis told reporters after their meeting. “Our first action as a government will not be to reject the rationale of questioning this program through a request to extend it.”
30-Jan (WashingtonPost) — The world’s worst portmanteau is back: Grexit.
That’s short for “Greek exit,” as in Greece leaving the euro. And it’s once again a possibility now that the left-wing, anti-austerity party Syriza has won power in the latest elections. The risk, as I’ve said before, is that the rest of Europe is in good enough shape that Germany finally thinks it can let Greece leave, and Greece’s budget is in good enough shape that it finally thinks it can leave too. Neither of them wants that, but neither of them doesn’t want it so much that they’d do anything to avoid it—so both might call each other’s, as it turns out, non-bluffs if Syriza tries to force Germany to renegotiate Greece’s gargantuan debt.
Cue the market freakout in three, two, oh, it’s already here? Why yes, yes it is. Greek stocks fell 11 percent on Tuesday, another 9.2 percent on Wednesday, before stabilizing up 3.2 percent on Thursday. Three-year borrowing costs shot up to 16.9 percent. And worst of all, Greek banks collapsed between 30 and 45 percent in just the last week. That’s enough, as we’ll see in a minute, to make it much more likely that Greece leaves the euro.
PG View: Even after Greece’s talks today with the EU, bond yields continue to march higher, exceeding 19%.