Tax reform more relevant to the Dollar than the Fed chair appointment

Outlook:

Information overload peaks today with the BoE decision, US tax reform, unit labor costs, and the nomination of a new Fed chief. The FT notes that naming Powell barely moves the needle, but perhaps we are missing that if Taylor gets the Vice Chairman job, it will be a game-changer, assuming the Taylor Rule comes with him. Taylor himself has said the rule should not be applied mechanically, but the market doesn't hear that part.

Bloomberg is running a series of Powell quotes to display his views, including one from Feb this year that "... there is no consensus that any one rule is best, let alone that it would be desirable to require the FOMC to pick and mechanically follow one rule to the exclusion of others." The FT notes that Powell has experience in banking regulation and may be interested in deregulation.

That Powell is hardly a flame-thrower doesn't mean the market won't respond aggressively to his nomi-nation. We say the only noteworthy thing about it is that Powell is an appropriate choice, unlike Trump's other top-job appointments. Somebody must have taken him to the woodshed to insist he couldn't name another wildly unsuitable and unqualified person to high office.

Tax reform is more relevant to the dollar. If we get the draft bill today as promised, it may lift yields, which is dollar-favorable. The markets will probably ignore the provisions that affect ordinary people and focus on the size of the cut in corporate taxes. Nobody actually pays at the full corporate tax rate, but the number has symbolic juice. Talk of 20% is silly, but a cut from 35% to 25% might be enough to rally the dollar.

Productivity and unit labor costs might get lost in the shuffle. Productivity is forecast to be above-trend but unit labor costs to remain modest. The flip side of unit labor costs is labor earnings, and without them, the inflation outlook remains tame.

Possibly getting some attention is an online survey by the American Psychological Association on stress. Bloomberg reports "Almost two-thirds of Americans, or 63 percent, report being stressed about the future of the nation... This worry about the fate of the union tops longstanding stressors such as money (62 percent) and work (61 percent) and also cuts across political proclivities. However, a significantly larger proportion of Democrats (73 percent) reported feeling stress than independents (59 percent) and Republicans (56 percent)." The biggie is "social divisiveness" (59% vs. 52% a year ago), although Trump is not named. A large number (59%) say this is the lowest point in our history they can remember. Bloomberg likes to twist the knife by pointing out that 2017 is on track to have the most persons giving up US citizenship, 1376 persons in Q3.

For such a big news day, we have very little to talk about so far. Sterling is the big mover today, despite the BoE delivering exactly what had been forecast, a rate hike but two dissenters and an indication that it might be one-and-done. A big move like this morning's (1.3276 to 1.3097 in a half hour) almost al-ways gets a bounce-back and then a wobble to-and-fro. It's better to stay out of it, if only because from now on, the big boys will be hunting stops.