five things to start your day

Powell or Taylor?

Advisors close to President Donald Trump are steering him toward choosing either Federal Reserve Board Governor Jerome Powell or Stanford economist John Taylor as the next Fed chair, according to several people familiar with the matter. A report from Politico that Powell is now the leading candidate spurred a rally in U.S. bonds and stocks, showing the market favors the continuity the Fed official would provide, while investors see a Taylor-led Fed as a hawkish outcome. It’s three weeks today since Trump said he would decide within three weeks on who would lead the central bank.

Tax plan boost

The Senate adopted a 2018 budget resolution yesterday that House GOP leaders have agreed to accept. Final approval of the measure will allow Republicans to pass a tax-code rewrite without Democrat support under a special procedure. The dollar climbed and Treasuries fell as the move increased optimism that tax reform plans – which would favor businesses – have a better chance of becoming law. 

Election weekend

There are elections this weekend in Japan, the Czech Republic and Slovenia. Latest polls in Japan show that Prime Minister Shinzo Abe’s ruling coalition is set to lose its two-thirds majority in parliament, a result which would make it difficult for him to implement his plan to revise the country’s pacifist constitution. Markets remain unconcerned about the outcome. In the Czech Republic, Andrej Babis, a billionaire facing criminal fraud charges, is poised to win parliamentary elections, with his populist ANO party leading in polls. Meanwhile, euro-area member Slovenia seems set to elect Borut Pahor for his second term in Sunday’s first-round vote, as a challenge from an anti-establishment former comedian fades.  

Markets rise

Overnight, the MSCI Asia Pacific Index slipped 0.1 percent, while Japanese indexes remained little changed. China’s Shanghai Composite Index climbed 0.3 percent after plans for a free-trade port in Shanghai enlivened stocks. In Europe, the Stoxx 600 Index was 0.2 percent higher at 5:45 a.m. Eastern Time with miners leading the gains. S&P 500 futures added 0.2 percent, the 10-year Treasury yield was at 2.361 percent, and gold was lower.

Merkel to the rescue

British Prime Minister Theresa May got some political cover from German Chancellor Angela Merkel when she said that “both sides need to move.” The mollifying tone from Merkel helps May sell concessions to eurosceptic members in her party. Elsewhere in Europe, separatists in Catalonia called for their supporters to spark a bank run by withdrawing funds from institutions that had moved their headquarters out of the region. Banks reported no unusual activity after opening for business.