Tax Bill Injects Calm Into Markets

By Riva Gold Features Dow Jones Newswires

U.S. stock futures inch up after Senate passes tax bill

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-- Treasury yields, dollar little moved

-- German bund selloff continues

World stock markets were calm Wednesday in anticipation of the largest structural overhaul of the U.S. tax system in three decades.

Futures suggested the S&P 500 would inch up 0.3%, reversing Tuesday's loss. The Stoxx Europe 600 edged down 0.1% in afternoon trading after a muted session in Asia, while U.S. Treasury yields steadied around a nine-month high.

The U.S. Senate passed the sweeping tax bill early Wednesday, but a last-minute glitch forced Republican leaders to schedule another vote in the House later on Wednesday morning. The result isn't likely to be any different and the measure will head to President Donald Trump for his signature.

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Investors are now debating how much of the bill has already been priced into markets and what impact the changes will have on the economy.

"The question for 2018 is: Will there be a positive effect on growth from the tax cuts?" said Abi Oladimeji, chief investment officer at Thomas Miller Investment.

Some investors believe the tax shake-up could lift growth and inflation in the U.S., in turn pushing up bond yields and prompting the Federal Reserve to tighten monetary policy a bit quicker than anticipated. Yields on 10-year U.S. Treasurys rose to 2.473% from 2.464% Tuesday, when yields posted their biggest one-day jump since September after the bill sailed through the House.

Meanwhile, U.S. stocks have climbed to record highs this year, in part on expectations that the bill will boost corporate profits, particularly among banks and retailers, which tend to pay higher effective tax rate.

"You're talking about a permanent boost to net income," said Ben Phillips, chief investment officer of EventShares, who launched an exchange-traded fund in October designed to track companies that benefit most from the tax changes.

Mr. Phillips has included companies that tend to pay more in taxes or would benefit from a pickup in capital expenditures, as well as exporters he believes could become more competitive globally with a lower tax rate.

Still, some investors also worry that much of the good news has already been priced into the S&P 500, which is up nearly 20% this year and 7% this quarter.

"This is the one market that has very much been driven by corporate tax cut expectations and with that now confirmed, a correction is an increasing risk," said Derek Halpenny, strategist at MUFG.

Elsewhere in markets, German government bond yields last traded at 0.398% from 0.302% at the start of the week. The German Finance Agency announced earlier that it plans to increase issuance of 30-year bonds next year, weighing down bond prices.

Spain's IBEX 35 Index fell 0.6%, trailing other European indexes, one day before Catalans vote for a new regional assembly in an outcome that could determine next steps for separatists in the region.

Sweden's krona rose 0.5% against the dollar after the Riksbank moved to end its asset purchases and confirmed that interest rates in Sweden will rise from mid-2018. The WSJ Dollar Index, which tracks the dollar against as basket of 16 others, was unchanged.

Asian markets were mostly flat in the quiet preholiday period.

Japan's Nikkei Stock Average edged up 0.1% as the dollar rose slightly against the yen and Japanese bank stocks rebounded further after recent gains in government bond yields.

Chinese equities fell after the midday pause, reversing some of Tuesday's gains. As China prepares to unveil its economic blueprint for 2018, people familiar with the plan say it will show that Beijing is finding it hard to cut debt without jeopardizing growth.

Bitcoin fell sharply earlier Wednesday, prompting some exchanges to halt trading. Analysts attributed the swings on money moving from bitcoin to an alternative cryptocurrency called Bitcoin Cash. One of the biggest exchanges, Coinbase, started trading Bitcoin Cash on Wednesday morning -- but halted activity after just four minutes.

Kenan Machado, Nina Adam, Lingling Wei and Richard Rubin contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

December 20, 2017 09:03 ET (14:03 GMT)