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A bit of opposition for Trump’s tax plan in Senate dampened the dollar’s spirits early in the session, but the currency quickly recovered when Republicans threw their support for Taylor as next Fed head.

  • U.S. flash manufacturing PMI up from 53.1 to 54.5 vs. 53.3 forecast
  • U.S. flash services PMI up from 55.3 to 55.9 vs. 55.2 forecast
  • Richmond manufacturing index fell from 19 to 12 vs. consensus at 17
  • Taylor and Powell as Trump’s top Fed Chair contenders?
  • Republican senators vote for Taylor in show-of-hands poll
  • GOP infighting put Senate tax reform vote in jeopardy

Major Events/Reports

Will Trump’s tax plan clear Senate?

Political drama in Washington (brought to you by Trump’s Twitter tantrums) could weigh on the odds of the administration’s tax reform agenda getting a majority vote in Senate.

As it turned out, Trump and GOP Senator Bob Corker were having a go at it on the social media platform, calling each other a “liar who has damaged U.S. standing in the world” and an “incompetent head of the Foreign Relations Committee.” Good stuff.

Soon after, another GOP Senator Jeff Flake gave a speech on how U.S. politics has been dominated by “reckless, outrageous and undignified” behavior. He continued:

“And when such behavior emanates from the top of our government, it is something else. It is dangerous to democracy.”

Now the Republicans only have a slim 52-48 majority in Senate, so losing a couple of votes from the party could mean a stalemate in the tax reform vote.

Sources say that the GOP plans to release its tax bill on November 1 while Speaker Paul Ryan said that they’re aiming to have this passed by Thanksgiving.

Taylor gets GOP support as Fed Chair

It looks like the long list of Fed Chair candidates has been narrowed down to two: Stanford University economist John Taylor or Fed official Jerome Powell.

In a luncheon with Republican Senators, Trump asked to have a show of hands on who they think he should appoint as leader of the central bank.

A source said that more hands were raised in favor of Taylor. And according to Senator Tim Scott, Trump “didn’t announce a winner, but I think Taylor won.”

Note that Taylor is perceived to be the more hawkish choice compared to Powell who has repeatedly expressed concerns about weak inflation and the pace of Fed tightening.

Bond yields ticked higher while stocks dipped slightly when the news broke out:

  • U.S. 10-year yield is up 0.46% to 2.417%
  • U.S. 30-year yield is up 0.35% to 2.933%
  • U.S. 5-year yield is up 0.59% to 2.039%
  • Dow 30 index closed 167.80 points higher at 23,441.76 (+0.72%)
  • S&P 500 index is up 4.15 points to 2,569.13 (+0.16%)
  • Nasdaq is up 11.60 points to 6,598.43 (+0.18%)

Current Fed head honcho Janet Yellen is still in the running as Trump mentioned in his interview with Fox Business Network over the weekend.

Major Market Mover(s):

USD

The scrilla was off to a rocky start on jitters surrounding the tax plan approval in Senate but pulled off a strong finish on reports that Taylor has the support of the GOP to lead the Fed.

EUR/USD popped up to a high of 1.1793 then retreated to 1.1759, USD/JPY dipped to 113.55 then rebounded to 113.98, USD/CHF found support around .9880 then rallied back up to .9910.

Watch Out For:

  • 1:30 am GMT: Australia’s headline CPI q/q (0.8% expected, 0.2% previous)
  • 1:30 am GMT: Australia’s trimmed mean CPI (another 0.5% gain expected)