Government debt sales are set to more than double in 2018, lifting net issuance to $1.3 trillion, the most since 2010, according to JPMorgan Chase & Co. estimates. With the Federal Reserve shrinking its bond holdings and deficits poised to swell even before considering the tax overhaul, all signs point to higher financing costs.


The global stock market is just a few days from entering the history books, largely thanks to the constantly priced in tax reform. As SocGen calculates, and barring any end of year sell-off, the MSCI World index is set to record it first ever year of posting a positive total return in every single month and will hit a remarkable sequence of 14 months of positive returns.


And, as we noted in our morning wrap note, spurring the US on has been the prospect of the much-promised tax cuts, with US corporation tax set to be cut to 21% from its current headline rate of 35%. Mechanically this would imply a significant boost for US EPS numbers were it not for the fact that actual tax rates are significantly lower. Top-down numbers, compiled using actual tax revenue from the BEA national accounts, suggests that the effective paid tax rate is already at 21%, and this is like SocGen’s own bottom-up calculations using cash tax paid from report and account cash flow statements. SocGen’s Andrew Lapthorne wrote, “Yes, tax rates from the P&L are higher, but not much higher at 25%, implying a 4% boost to net income once the reforms are passed. So positive, yes, but not dramatically so.”



Market Recap

S&P 500 +22.09% YTD

The S&P 500 gained 0.30% last week in quiet holiday trading.



Russell 2000 +15.14% YTD

The Russell 2000 rose 0.84% for the week.



International developed stocks gained 1.24% for the week.



MSCI Emerging Markets +34.19% YTD

The Emerging Markets rallied 2.07% for the week.




Barclays Aggregate Bond Bonds fell 0.64% as the 10-year treasury yield rose to 2.49%.


Barclays High Yield Bond +5.84%

High yield bonds retreated 0.42% in the week and continued to diverge from equity market performance.











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