US Stock Indexes Surge After Senate Moves Toward Tax Reform

The major U.S. stock indexes surged on Friday after the U.S. Senate overcame a significant hurdle to move toward tax reform. The blue chip Dow Jones Industrial Average reached an intraday and closing record, led by strong performances by Boeing, Goldman Sachs and JPMorgan Chase.

The Dow was also boosted by a huge recovery in General Electric, which began the day down 6 percent before aggressive bargain-hunter buying drove the market up 1 percent into the close. The price action suggests the worst may be over for the stock which reported weaker-than-expected earnings Friday morning and its forecast for the year.

Strong gains in the financial sector helped drive the benchmark S&P 500 Index into a record high. The tech-based NASDAQ Composite also had a record-setting day.

For the week, the Dow, S&P and NASDAQ posted weekly gains of 2 percent, 0.9 percent and 0.35 percent, respectively.

Economic News

Existing Home Sales unexpectedly increased in September as the effects of Hurricanes Harvey and Irma began to dissipate. However, investors said persistently low inventory of properties for sale continue to weigh on overall activity.

According to the National Association of Realtors, existing home sales rose 0.7 percent to a seasonally adjusted annual rate of 5.39 million units last month. August's sales pace was unrevised.

Economists had forecast sales falling 1.0 percent to a rate of 5.30 million units last month. Sales were down 1.5 percent from September 2016, the first year-over-year decline since July 2016.

Supply was down 6.4 percent from a year ago. Housing inventory has declined on a year-on-year basis for more than two years.

Weeks after getting hit by Hurricane Harvey, Houston's housing market recovered with a 4 percent gain in sales. However, Florida was still feeling the effects of Hurricane Irma, coming in down 22 percent.

The Federal Budget Balance was projected at 8.0 Billion, better than the -0.9 Billion forecast. The previous read was -107.7 Billion.

Finally, Fed Chair Janet Yellen said late Friday that the lack of inflation has been an unexplainable "surprise," while the Fed's removal of stimulus is "working well."

"We've had a series of weak, soft readings on inflation, core inflation, beginning in March and the reasons for that are not immediately clear," Yellen said. Reasons for low inflation were "pretty understandable until this year. This year has been a surprise."

Gold

Gold prices retreated on Friday in reaction to rising Treasury yields, a stronger U.S. Dollar and increased demand for higher yielding assets.

Treasury yields rose after the U.S. Senate passed a budget proposal Thursday night that allowed Republicans to move closer to eventually passing tax reform. The measure was passed with a vote of 51 to 49. Rising Treasury yields helped make the U.S. Dollar a more attractive investment while driving down demand for dollar-denominated gold.

The strong performance in the stock market also pressured gold because it showed increased investor appetite for risky assets. Gold is considered a safe haven asset that pays neither interest nor a dividend.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished higher on Friday, drawing support from a steep drop in Iraqi crude exports due to tensions in the Kurdistan region. However, weak U.S. demand helped limit gains.

According to a shipping source, oil exports from Iraq's Kurdistan towards the Turkish port of Ceyhan were flowing at average rates on Friday of 216,000 barrels per day versus the usual flows of 600,000 bpd.

It was also reported on Friday that Russia's biggest oil company, Rosneft, has agreed to take control of Iraqi Kurdistan's main oil pipeline in $1.8 billion investment. This news likely means Baghdad will have a hard time shutting down these oil flows.

In other news, the U.S. oil rig count fell for a third week in a row, extending a two-month drilling decline, although producers have sharply ramped up bets against a fall in oil prices , which could spur another investment surge.

According to General Electric Company's Baker Hughes energy services firm, the oil rig could fell seven to 736 in the week to October 20, the lowest level since June.

This article was originally posted on FX Empire