Market wrap: Republican tax reform plan released, DXY down - 0.1% - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"Global market sentiment: US equities, bond yields and the US dollar fell slightly in response to the Republican tax reform plan. The BOE hiked but the GBP fell in response. Powell was announced as the next Fed Chair.

Interest rates: US 10yr treasury yields fell from 2.36% to 2.33% after the tax plan was announced. Fed fund futures yields continued to price the chance of a December rate hike at 98%.

Currencies: The US dollar index was volatile, falling after the tax plan but recovering later to be down 0.1% on the day. EUR rose from 1.1630 to 1.1690. GBP was the day’s underperformer, falling after the BOE rate hike from 1.3240 to 1.3043, indicating the market was expecting a more hawkish outlook. USD/JPY traded around 114.10 apart from a temporary dip to 113.54 post-US tax plan. Outperformer AUD preserved earlier data-related gains, nudging higher to 0.7730. NZD ranged between 0.6890 and 0.6935. AUD/NZD ground slightly higher from 1.1130 to 1.1170.

Economic Wrap

US non-farm productivity rose 3.0% in Q3 (vs 2.6% expected), tracking the increase in GDP growth. Unit labour costs rose 0.5% in Q3 (vs 0.4% expected).

Powell and Dudley both warned Libor may eventually be replaced as an interest rate benchmark, but there were no monetary policy comments. Several media channels yesterday reported “sources” saying that Powell would be confirmed as the new Fed Chair at 3pm NY time.

Hot off the press, Jerome Powell has just been announced by Pres. Trump as the next Fed Chair.

The Bank of England increased its policy rate by 25bp to 0.50%, its first shift since the Brexit-related 25bp cut in 2016. The vote was 7-2, Cuncliffe and Ramsden dissenting. There was no change to the asset purchase program. Projections for the policy rate rising to 1.00% by the end of 2020 were less hawkish than the market was expecting, causing a fall in the GBP and market interest rates."