US: Political drama to dominate the agenda this week - BBH

US politics dominate the agenda this week and in the run-up to the ECB meeting on October 26 as the market has gone as far toward pricing in a December rate hike as seem prudent at this juncture, according to analysts at BBH.  

Key Quotes

“It peaked as we surmised after the September employment report.  Six Fed officials speak in the week ahead.  Yellen and Dudley's comments are the most important, but investors should not expect more insight into the December meeting, and we would pencil in zero chance of a November hike.”  

“The US political drama runs throughout.  Executive orders to stop subsidizing insurance companies under the Affordable Care Act given the failure of Republicans to "reform and replace" creates the potential for greater disruption.  Several states are apparently poised to challenge the President's order in the judiciary.  Tax reform may be running aground after Trump said last week that he would make some adjustments shortly to the framework offered last month.  There has been a significant resistance to abolishing the state and local tax (SALT) deduction (from Federal tax obligations).”  

“Recall that the Border Tax Adjustment was to raise $1 trillion over the next decade.  Health care reform was to raise another $1 trillion.  The end of the SALT deduction was to raise $1.5 trillion.  If these revenues are no longer likely, what will be replacing them?  Can the resulting deficit be assumed away if we forecast sufficiently faster growth, spurred by the tax cuts themselves?”  

“Trump's nomination of the next Federal Reserve Chair is expected any day.  Surveys of market participants see Warsh as most likely to get the nod while betting websites see Powell as more likely.  Reports suggest that Treasury Secretary Mnuchin prefers Powell.   This takes an unnecessary risk of clout if not credibility if Trump picks someone else.”