This past week was filled with a packed economic and corporate earnings calendar which included the nomination of a new Fed Chairman (Fed Governor Powell), the first rate increase in the UK in a decade, the proposed outline of the new GOP tax bill, and the monthly jobs report. Also, many major corporations announced positive third quarter earnings. Below is a summary of the key events of the week:
Fed Governor Powell is viewed as a safe pick for the Fed and is likely to maintain Janet Yellen’s and Ben Bernanke’s policies albeit with an inclination toward less regulation. The announcement came as no surprise and rates trended slightly lower into the announcement. It is believed that Mr. Powell will continue the slow path rates hikes approach.
In the U.K., the Bank of England raised short-term interest rates for the first time in over a decade. This was in response to a recent return of mild inflation and a synchronized improving global economy.
Back in the U.S., the GOP unveiled its new tax proposal, which focuses on business tax rate deductions. Inevitably, there will be winners and losers in this plan. At the moment, it appears that cities with expensive real estate will be at a disadvantage due to the new caps on property tax deductions and the reduction in the size of the mortgage deduction.
Finally, the October jobs report came in under expectations with 261,000 new jobs created versus 300,000 expected. Due to the late summer hurricanes in Texas and Florida, this report has been discounted as these storms caused many temporary distortions. However, it is worth reporting that income remains flat which is a strong indicator that inflation is not existent in the economy at this time.
The 10-year Treasury yield headed lower this week and is trading at 2.333%. Given all of the positive economic data, robust earning, and possible pro-business tax plans, we are pleasantly surprised by where interest rates are holding, but we are maintaining bias toward higher interest rates.
