It is a week jam-packed with major market moving economic data, central bank decisions in addition to President Trump’s much-anticipated decision on the next Fed chair. We take a look at how these factors will impact on markets with analysis of forex, equities and commodities.
As we move towards the final couple of months of the year, volatility is beginning to pick up as big fundamental events start to play out. This week the focus will be back on the dollar as tax reform and Trump’s choice for the next Fed chair is set to be announced (likely before Trump leaves for Asia on Friday). The big mover of US inflation, Treasury yields and subsequently the US dollar in the coming months is still likely to be the successful progress of US tax reform. Whilst the political machinations of the Senate Republicans are certainly a hurdle, Paul Ryan is confident he can sweeten the deal enough for a resolution that will enable reform in some form to be passed. The House will introduce the bill on Wednesday and start committee deliberations on 6th November. However, the front end of the US curve has been pulled higher recently by positioning for Donald Trump’s choice of the next Fed chair. The decision seems to be ever narrowing and it would appear that John Taylor and existing FOMC Board member Jerome Powell are front runners. Taylor is a Stanford professor, whose “Taylor rule” on a rules based system of devising monetary policy would have tighter monetary policy than currently seen. Powell would be the continuity choice, but even he would be seen as slightly more hawkish than Yellen. However, with the position of vice Chair also open a combination of the two is likely, which would be seen as positive for yields and dollar supportive.