U.S. Markets Tumble on Disappointing Tax Reform News

Disappointment with a tax bill put forth by U.S. Senate Republicans that would delay corporate tax cuts dominated the trade in all asset classes on Thursday. Risky assets such as the U.S. Dollar and U.S. equity markets lost ground while money flowed into safe haven assets such as gold and the Japanese Yen. The tone set on the weekly charts suggests the story may linger for some time.

According to CNBC, the Senate Republican’s bill to rewrite the tax code differed from their House counterparts’ plan. Like the House version, the Senate’s proposal would cut the corporate tax rate to 20 percent from 35 percent, but the Senate plan would delay implementation until 2019.

The politicians suggest this process is normal, however, the market action suggests investors want clarity.

Additionally, both plans call for a tax on $2.6 trillion in foreign profits held offshore by U.S. multinationals. The Senate wants that tax to be 12 percent for cash and liquid assets, and 5 percent for non-liquid assets. The House amended its bill on Thursday, going to 14 percent and 7 percent respectively.

Furthermore, both bills would add $1.5 trillion over 10 years to the U.S. budget deficit and national debt, which in the past would likely have faced criticism from Republicans.

Economic News

Weekly initial claims for state unemployment benefits increased 10,000 to a seasonal adjusted 239,000 for the week-ended November 4, the Labor Department said Thursday. This was higher than the previous week’s 229,000 claims, which came in near a 44 1/2-year low. However, the number was still below the significant 300,000 level which means we’re still looking at a healthy labor market. Traders were looking for a rise in claims to 231,000.

In other news, the Commerce Department said wholesale inventories rose 0.3 percent. This matched a survey of economists. Additionally, the strong growth in August was revised slightly downward from 0.9 percent to 0.8 percent.

Forex

The U.S. Dollar fell against a basket of currencies on Thursday as investors expressed fear the delay in tax reform would have an impact on the Federal Reserve’s plans to raise interest rates in 2018 and 2019.

Gold

Gold futures rose on Thursday as the weaker U.S. Dollar made the dollar-denominated asset a more attractive asset to foreign buyers. The precious metal was also supported by a sharp break in U.S. equity markets. Investors sold higher yield assets and moved the proceeds into the safe haven gold market.

Crude Oil

U.S. West Texas Intermediate and internationally-favored Brent crude oil futures recovered on Thursday to post a small gain after Wednesday’s steep sell-off. The markets were supported by supply cuts by major exporters, however, the inability to take out this week’s two-year highs suggested the markets were still vulnerable to near-term weakness.

Traders attributed the rally to new buyers betting an OPEC-led coalition that is controlling current production cuts would agree to an extension of the strategy beyond the March 2018 expiration date when it meets on November 30 in Vienna, Austria.