It appears the markets are in for another quiet trading day. Dow futures are almost unchanged, and bond prices are slightly higher.
Bond prices rallied yesterday on news that Fed Reserve Governor Jerome Powell cancelled a speaking engagement on Friday. Why was this a big deal to traders? Powell in one of the candidates for Fed Chair, and he is one the bond market would be happy with. He has been in sync with Janet Yellen and her monetary policy, and bond traders would be very comfortable with that transition. But the bond rally faded when the Fed put out a statement that the cancellation was a result of a routine scheduling change. Maybe, maybe not.
When the announcement does come, remember that the only known nominee that might produce a negative reaction in the bond market is Keven Walsh. Walsh has been highly critical of the Fed’s QE and low rate policy. The other five known candidates would receive mostly shrugs. Trump could surprise everyone with someone other than the six known candidates, and he does like surprising people.
At the risk of being proved dead wrong very soon, instead of being proven wrong over a long period of time, I will dare to say that one of the candidates for certain will not get the nod. That candidate is Janet Yellen. Trump has been wildly inconsistent on many issues since he took office, but there is one area in which he has been completely consistent. From day one he has focused on undoing anything and everything done by Obama, and Obama put Janet Yellen in the Chair. That is only one strike against her, but it might be the only one that matters. If I am wrong, I will try to come up with some appropriate punishment for myself.
Time for adjustments
In other news, President Trump has said he will be adjusting his tax plan. Now that the numbers have been crunched and widely circulated in the press, it’s clear to everyone the plan favors the very wealthy and has little offer the middle class. He will have to adjust that to have any hope of passage. He also must adjust the plan to appease deficit hawks. This merely confirms what we have known all along. This is going to be a long and difficult process. Over the next several weeks, if it looks like the plan will not be wrapped up by December, stock traders might lose patience.
Later today the minutes from the September FOMC meeting will be released. Traders will play the game of parsing words to divine whether or not a December rate hike is close to a done deal. The Treasury will auction 3-year and 10-year notes today, and dealers are looking for very strong demand after last month’s weak auction results. Yields are higher and dealers also expect strong foreign demand.
Opening market reads
- The 2-year is 1.51%
- The 5-year is 1.95%
- The 10-year is up 2/32 at 2.355%
- The 30-year bond is up 7/32s at 2.89%