MACRO NEWS

 

Trump, Republicans unveil tax reform plan
Still seeking his first major legislative accomplishment, US president Donald Trump this week unveiled a reform plan designed to simplify the cumbersome US tax code. Under the proposal, today’s seven tax brackets would shrink to three (with the potential for an additional bracket for high-earners) and the corporate tax rate would be cut from 35% to 20%. The plan would nearly double the standard deduction for most households and retain mortgage interest and charitable deductions while eliminating deductions for state and local taxes. The plan would end the estate tax and the alternative minimum tax. As with his efforts to repeal and replace Obamacare, Trump has left many of the details of the plan in the hands of congressional leadership. Markets have greeted the proposal positively, pushing equities, bond yields and the dollar higher in anticipation of a faster pace of economic growth.

 

Merkel diminished as establishment parties suffer at polls
German chancellor Angela Merkel will be forced to cobble together a three-party coalition after her Christian Democratic Union fared worse than expected in Sunday’s election. The right wing populist Alternative for Germany party won 12.6% of the vote, becoming the third-largest party in the Bundestag. Another small party receiving a substantial number of votes was the Free Democratic Party (FDP), which garnered 10.7%. The FDP will likely pry the finance ministry away from Merkel’s CDU in return for its support in parliament. Wolfgang Schaeuble stepped down after eight years as finance minister this week to take up the post of president of the parliament, paving the way for a new finance minister. The FDP is thought to be even less inclined to bring about closer European integration than past Merkel governments.

 

Japan’s Abe calls snap election
With his popularity on the rebound after a series of summer scandals, Japanese prime minister Shinzo Abe dissolved parliament this week and called an election for 22 October. Abe asked for a new mandate to deal with the growing threat from North Korea and said it is urgent that Japan's social security system be rebalanced in order to cope with the growing number of retirees.

 

Fed stays on course despite low inflation
US Federal Reserve chair Janet Yellen this week said it would be imprudent to keep monetary policy on hold until inflation reaches the Fed’s 2% core personal consumption expenditures target, making a December rate hike more likely. That inflation measure fell further below target on Friday, declining to 1.3% in August, year over year, from 1.4% in July. Yellen’s comments, along with hopes for a broad tax cut, helped send Treasury yields higher this week.

 

US Q2 growth revised higher
According to estimates released this week by the Bureau of Economic Analysis, The US economy grew at an annual rate of 3.1%, a slight upward revision from last month’s 3% reading. Despite the uptick in growth, corporate profits advanced at an annual rate of just 0.1% in Q2, a sign that the broad economy is performing worse than large multinational firms, which have recorded two straight quarters of double-digit profit growth. Economic data for the next few quarters are likely to be noisy given the disparate economic impacts of hurricanes Harvey, Irma and Maria.

 

Spanish government moves to squelch Catalan vote
Spanish authorities are moving to prevent an independence referendum from taking place in the Catalonia region on Sunday, 1 October. The vote has been ruled illegal by Spain’s Constitutional Court. Some fear the government’s heavy-handed approach may feed separatist sentiment, but Madrid appears to be willing to deal with the aftereffects at a later date in order to prevent Sunday’s plebiscite. 

 

 

THE WEEK AHEAD

 

Date

Country/Area

Release/Event

Mon, 2 Oct

Japan

Tankan survey

Mon, 2 Oct

Global

Manufacturing purchasing managers’ indices

Tue, 3 Oct

United States

Motor vehicle sales

Wed, 4 Oct

Global

Services PMI

Wed, 4 Oct

eurozone

Retail sales

Thu, 5 Oct

eurozone

Minutes of September European Central Bank meeting

Thu, 5 Oct

US

Trade balance

Fri, 6 Oct

US, Canada

September employment report

 

 

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.

 

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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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