MACRO NEWS

 

Trump names Powell to replace Yellen
US president Donald Trump nominated Jerome Powell to replace Janet Yellen as Federal Reserve Board chair. Powell has been a member of the Fed Board of Governors since 2012. If confirmed, he is expected to maintain monetary policy continuity while rolling back some post–financial crisis banking reforms.

 

US unemployment rate falls to lowest level since 2001
The US economy created 261,000 new jobs in October as the labor market rebounded from disruptions linked to hurricanes Harvey and Irma. The bounce-back was somewhat smaller than economists had forecast, however, falling short of the 310,000 consensus view. The unemployment rate fell to 4.1%, a 16-year low. Average hourly earnings disappointed, coming in unchanged versus the prior month, and rising at a 2.4% rate year over year, down from 2.8% last month.

 

Republicans flesh out tax bill
Corporate tax cuts make up the centerpiece of the tax reform proposal unveiled this week by Republicans in the US House of Representatives. Among the bill’s provisions is one that would permanently lower the corporate tax rate from the current 35% to 20%, though interest deductions for businesses would be limited. The plan retains the top 39.6% income tax rate, but raises the threshold at which the tax would kick in for married filers from $470,000 to $1 million a year. Under the proposal, the 40% estate tax would be eliminated in 2024, while the estate tax exemption would immediately double to $11.2 million per married couple. Unchanged under the plan would be 401(k) plans, though deductions for state and local income taxes would be eliminated. Property tax deductions would be limited to $10,000. Some of the themes emphasized in the bill are the elimination of many tax credits, deductions and exclusions, which could simplify the complex tax code somewhat. However, other provisions make it more complex in areas such as the taxation of pass-through businesses.

 

BOE hikes rates for first time in decade
The Bank of England’s Monetary Policy Committee hiked its policy rate from 0.25% to 0.5% this week, the first increase in more than 10 years. The move comes in reaction to a post-Brexit surge in inflation, largely because of weakness in the pound sterling that resulted in rising import prices. The MPC indicated that further rate hikes are expected “at a gradual pace and to a limited extent.” The pound fell 1% after the announcement while yields on United Kingdom government bonds declined, aided in part by concerns expressed by the MPC that the uncertainty surrounding Brexit will continue to weigh on domestic activity, which has slowed even as global growth has accelerated. The last time the MPC hiked rates was in July 2007.

 

Fed left policy on hold
The Federal Open Market Committee left rates unchanged at their November meeting but hinted that a rate hike remains likely at its December meeting. The FOMC statement acknowledged that late-summer hurricanes had caused mild economic disruptions but that they were unlikely to persist over the medium term. 

 

US consumer confidence hits 17-year high
The Conference Board’s consumer confidence index rose to the highest levels since December 2000, spurred by surging equity prices and tight labor markets. In addition, investor confidence reportedly rose this week, with the Investors Intelligence survey hitting a bullish reading of 63.5%, up from 63.2% a week ago. In early September the index stood at an eleven month low of 47.1%.

 

Venezuela seeks debt restructuring
Venezuelan president Nicolas Maduro said Thursday that his country will seek to restructure the nation’s outstanding debt. Maduro said state-owned oil giant Petroleos de Venezuela will make a principal payment of $1.1 billion on Friday for a bond that came due on Thursday. However, US sanctions against Venezuela will make the restructuring more challenging because of restrictions on US investors dealing with Venezuelan officials.

 

EARNINGS NEWS

 

With nearly 80% of the constituents of the S&P 500 Index having reported, third-quarter earnings are expected to increase 5.9% compared with the same quarter a year ago. Stripping out the insurance sector, which was hampered by the impact of several hurricanes, the growth rate rose to 8.5%. The blended revenue growth estimate is approximately 5%, according to FactSet Research.

 

THE WEEK AHEAD

 

Date

Country/Area

Release/Event

Mon, 6 Nov

eurozone, UK

Service sector PMIs, investor confidence index

Tue, 7 Nov

Australia

Reserve Bank of Australia rate-setting meeting

Tue, 7 Nov

eurozone

Retail sales

Wed, 8 Nov

China

Trade balance

Thu, 9 Nov

United States

Wholesale inventories

Fri, 10 Nov

United Kingdom

Industrial production, trade balance

 

 

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

 

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

 

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.

 

Past performance is no guarantee of future results.

 

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg New; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.

 

This content is directed at investment professionals only.

 


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