Summary:

  • US House of Representatives passes the tax bill sending it to President Trump
  • Bank of Japan keeps rates unchanged at its last meeting this year
  • NZ GDP beats forecasts, the NZ dollar trades little changed though

It’s been the session abundant in many important events including the final vote to the US tax bill and some macroeconomic releases. Let’s begin with US politics where the House of Representatives gave final approval to the biggest shake-up of the US tax code in three decades. After the successful voting the bill will be sent to President Donald Trump for his signature. Let us also recall that the US Senate did pass the legislation on Tuesday which was seen as a breakthrough in the whole complex process. The House approved the measure by 224-201 but it voted for the second time in two days after a procedural foul-up forced another vote a day later. In the aftermath of historical passage President Trump said “we are making America great again” – his well-known presidential campaign slogan. After a while he also added “Ultimately what does it mean” It means jobs, jobs, jobs.” Once Trump seals the bill (it’s only a matter of time) it will be his first major legislative victory since he took office in January this year.

While the US 10Y yield crossed a magic 2.5% barrier yesterday evening, the US dollar was unimpressed to say the least. Furthermore, the greenback even lost some ground against the single currency which was trading even above 1.19. On the other hand, taking a closer look at the USDJPY one may assume that the pair could continue its upward momentum given a tremendous discrepancy with the US 10Y yield (the chart below shows an inverted bond price chart). Apart from the tax thread there are some uncertainties whether the House has enough votes to pass the bill in order to avert the government shutdown, at least according to the House leaders cited by Reuters. Nonetheless a vote has not been scheduled yet.

link do file download linkThe USDJPY seems to be uninterruptedly shored by the US bond market, thus one may assume that the pair could march toward 114.3 in the nearest future. Source: xStation5

Moving on, there was the BoJ meeting where rates were held obviously on hold. The board also maintained the 10Y yield JGP target around 0% and its pledge to buy JGBs more or less at the current pace so its holdings increase at the annual pace of around 80 trillion JPY. The bank raised its assessment on capital expenditure, however cut assessment on public works investment. The BoJ’s view on consumption was upgraded. The sole dissenter on the yield curve control mechanism was Kataoka.

link do file download linkNZ GDP grew more than expected in y/y terms in the third quarter. Source: Macrobond, XTB Research

Finally let’s also mention the reading of New Zealand GDP which picked-up 0.6% q/q and 2.7% y/y in the past quarter. The consensuses had looked for 0.6% and 2.4% in q/q and y/y terms respectively. Taking a look at the chart above we may spot that household outlays contributed the most to growth once again while net exports and inventories deducted a bit.

link do file download linkThe NZ dollar gained momentum following the GDP release, however momentum was not so impressive. The pair might keep on climbing toward 0.7060 in the foreseeable future. Source: xStation5