It was a bumpy start to the week as the major indices did a backslide following reports the House GOP might pursue a five-year phase-in of a cut in the corporate tax rate to 20% as part of its tax reform plan. Misgivings about that approach were reflected primarily in the Russell 2000 (-1.2%), which houses small, domestically-oriented companies that would not benefit as much from a phase-in approach.
When it comes to possible tax reform plans, though, there are a lot of plates spinning right now, so it is difficult to get too wrapped up in any one assumption about what the final plan might actually look like.
Remember, a phase-in approach is just one idea as part of the House GOP's planning vision. The Senate has its own planning vision, which is to say things still remain cross-eyed. Eventually, the House and Senate GOP will have to see eye-to-eye to get a tax deal done.
The House reportedly wants to release its plan by Wednesday, yet there is a whole lot of leg work to be done if a tax deal is going to get done by the end of the year. One can rest assured, however, that there will be daily headlines addressing the ebb and flow of tax reform dealings into year end that can be lauded as excuses for buying or selling on any given day.
On Monday, there was an excuse to sell. This morning, that excuse seems to have dried up.
The S&P futures are up five points, the Nasdaq 100 futures are up 23 points, and the Dow Jones Industrial Average futures are up 29 points, leaving the major indices on track to start the session on a modestly higher note.
There isn't much that meets the eye to explain the positive bias.
The Bank of Japan left its key interest rate unchanged at -0.1% and lowered its core inflation forecast for fiscal 2017/2018 to 0.8% from 1.1%. That was largely expected.
China's official manufacturing PMI reading for October slipped to 51.6 from 52.4 in September and was a bit weaker than expected. Similarly, the 1.4% year-over-year increase in eurozone CPI in October was also a bit weaker than expected and down from the 1.5% year-over-year reading in September.
We suppose one could make a case that market participants view these reports as a signal that there isn't going to be a synchronized global tightening among the world's leading central banks in the immediate future, which effectively qualifies as a positive consideration for a market that has feasted on the persistence of low interest rates.
The FOMC, which starts a two-day meeting today, isn't expected to raise the fed funds rate until its December meeting. The Bank of England, on the other hand, is anticipated to bump up its key lending rate on Thursday to 0.50% from 0.25%.
Better-than-expected earnings reports from BP (BP), Aetna (AET), Kellogg (K), and Pfizer (PFE) have helped shore up some early support from buyers, but overall, the urgency to buy on yesterday's dip doesn't have an overly urgent feel to it.
In the same vein, there wasn't any urgent response to the third quarter Employment Cost Index, which showed compensation costs for civilian workers increased 0.7%, seasonally adjusted (Briefing.com consensus +0.6%).
The latter was close to the consensus estimate and was paced by a 0.7% increase in wages and salaries, which make up 70% of compensation costs, and a 0.8% increase in the cost of benefits, which make up the remaining 30% of compensation.
On a year-over-year basis, compensation costs for civilian workers increased 2.5%, versus 2.3% for the 12 months ending September 2016. The key takeaway, then, is that there was a slight pickup in compensation costs, but not enough to trigger any undue inflation alarm.
The Treasury market, which is little changed, was pretty non-responsive to the report, as was the futures market.