Originally published by Rivkin Securities
US stocks were down slightly overnight with the Dow closing down 0.15% while the S&P 500 was down 0.3%. The Nasdaq 100 was the worst performer of the three, down 0.5%. The US tax bill has been approved by the House of Representatives and must now face the Senate. The bill will lower the corporate tax rate to 21% from 35% previously (among other things) and should be a net benefit for stock valuations. The ASX 200, meanwhile, climbed 0.55% yesterday bringing it to a new 10-year high and adding to Monday’s gains.
Longer term bond yields rose overnight, steepening the yield curve after months of a general trend toward flattening. The US 10-year yield is now 2.46% and beginning to approach the three-year highs of 2.62% reached in March of this year. Although Australian bond yields were also up substantially yesterday, the spread between the US and AU 10-year bonds is now just 18 basis points which is almost a 15-year low and unless Australian rates begin to move higher, it is likely that the US 10-year bond will soon offer a higher yield than the equivalent Australian bond.
The monetary policy meeting minutes of the most recent Reserve Bank of Australia meeting were released yesterday and showed that the bank expects unemployment to keep falling and inflation to rise toward the 2-3% target. On the international front, China’s economy has been stronger than expected so far this year which has been a positive for Australia’s mineral exports and balance of trade. In the end the board left rates unchanged but the sentiment seems to be slowly shifting towards the need for a rate hike at some point.
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