By Joyce Yu
Philadelphia, PA–U.S. Stocks opened higher Friday morning after the latest developments in Washington buoyed optimism about tax reform and the latest report showed job market remained tight.
The Dow Jones industrial average and the S&P 500 posted minor gains on Thursday to close at new record highs. The Nasdaq dropped 0.3%. European markets opened higher in their morning sessions.
On October 19, the Republican-controlled Senate voted 51 to 49 for the budget measure, paving the way for taxes to be reformed in the 2018 fiscal year without support from the Democrats. This would add up to $1.5 trillion to the federal deficit over the next decade.
“The risk environment remains constructive, regardless of increased political uncertainty as related to Europe,” wrote Credit Agricole analysts in a note to clients. “The latest development is taken as a first step towards tax overhaul, and may be understood as an indication that there is willingness to accelerate efforts with respect to cuts.”
At the core of “Trumpflation trade” which propelled the dollar to 14-year highs earlier this year are bets that Trump’s planned tax cuts, infrastructure spending and other pro-business measures would push up growth and inflation. But there have been doubts about Trump’s ability to push through reforms.
“We could see the revamp of the Trumpflation trade,” said ING strategist Martin van Vliet, in Amsterdam. “There are still some steps to go but the bottom line is that the door to tax cuts has opened a bit further.”
Separately, latest report on Thursday showed the number of Americans filing for unemployment benefits dropped to its lowest level since 1973, pointing to a rebound in job growth after a hurricane-related decline in employment in September.
Initial claims for state unemployment benefits fell 22,000 to a seasonally adjusted 222,000 for the week ended Oct. 14, marking the 137th consecutive week that claims remained below the 300,000 threshold, a key indicator of a robust labor market. But the decrease in claims was probably exaggerated by the Columbus Day holiday on Monday, according to the Bloomberg.
“The data suggest that the underlying trend in employment growth remains more than strong enough to keep the unemployment rate declining,” Jim O‘Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, share with the Reuters.
“At this point, we would expect a sharp bounce-back in employment growth in October.” said John Ryding, chief economist at RDQ Economics in New York.
