The events in Washington overshadowed the release of solid economic data last week. With consistent economic data emerging over the last few weeks, markets have shifted their primary attention to the events in Washington.
The three key areas of focus are tax reform, the Russia investigation and a potential North Korean response. With Friday evening’s passing of the tax bill in the Senate, it appears significantly more likely a bill will make it to the President’s desk prior to the end of the year. I expect continued support for equities coming from the tax bill and deregulation efforts like the initial legal victory of the appointment of Mick Mulvaney as the interim head of the Consumer Financial Protection Bureau. However, the Russia investigation and instability in North Korea have the potential to add downward pressure and volatility to markets over the next several weeks.
The November employment report on Friday will be the most significant economic data released this week. Expectations are for 199,000 new jobs for the month, keeping the unemployment rate at 4.1%. It is also expected that average hourly earnings will increase by 0.3% for the month to 2.7% for the past year. Keep an eye on break even inflation to see if the markets begin to price in rising inflation expectations as a result of the strong employment environment.
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