Taxation debate could be pushed down the priority list

Following a full week of very strong economic news, the Trump administration banked a significant reserve of political capital that could be used to drive forward flagship policies on both taxation and healthcare. Today, that progress could be hindered as indictments were handed down to key figures from the Trump election campaign. Coverage on the charges will be far more in-depth elsewhere, but the counts against campaign chairman Paul Manafort and his aide Rick Gates include money laundering, making false statements to federal authorities and, most ominously, conspiracy against the United States.

The news has undoubtedly caught the attention of media outlets worldwide. The extent to which this indictment is played out in the press will have a significant impact on market sentiment and therefore the trajectory of the dollar. Trump himself has this morning taken to Twitter to declare that there has been “NO COLLUSION!” and that the charges relate to actions that predate the Trump campaign by a matter of years. What that says about Trump’s due diligence and background checking is best left unsaid but it’s hard to see this furore coming to a close anytime soon.

Why does this matter for the dollar and foreign exchange markets? The longer these investigations clog up the White House’s timetable, the less time Trump can lobby for his flagship tax reform policies. We should find out whether the tax bill progresses on Wednesday.

It’s all about offshore earnings

Hopes of corporate tax reform ran high following the inauguration of Trump as he campaigned on a pledge to slash not only personal, but also corporate, taxes. This led to expectations that American corporates would be more forthcoming in bringing their untaxed profits onshore and could prompt a flurry of dollar buying as companies large and small swell their domestic bank accounts.

With over $ 2.6 trillion in funds lying overseas and beyond the reach of the IRS, bringing this cash onshore would be the equivalent of adding another California (the largest state economy) onto the national accounts.

We should know the next Fed chair by the end of the week

According to press reports, Trump will announce the next chair of the Federal Reserve this Thursday. Jay Powell, current Fed governor, is currently the favourite to takeover and will know the walls and offices of the Fed like the back of his hand, so the market may take some confidence that the position as one of the most powerful financiers in the world is being handed to a man with experience.

Separately, Janet Yellen presides over the Fed this week at their latest rate decision. Rates are expected to remain unchanged and, as ever, focus will turn to the inflation and growth outlook.

Hurricane bounceback to boost jobs growth

Labor market indicators have all been pointing in the right direction in recent weeks and this Friday’s Nonfarm Payrolls is expected to follow suit. With jobs growth potentially topping 300,000 over October we could see the best set of figures for years. What’s important for this release is context and the longer-term average. Last month’s negative reading will factor into this heavily and smooth out these short term fluctuations, so noise will run high on Friday, but clarity will run low.

Have a great week.