Daily Comment (December 19, 2017)

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST]

(Note to readers: The Daily Comment will go on hiatus after Friday; commentary will resume on January 2, 2018.)

Markets are quiet this morning as investors begin to wind down for the holiday weekend.  Here is what we are watching this morning:

Tax bill update: The House will vote on the tax bill in the early afternoon.  Although no Democrats are expected to support the measure and a few Republicans from high SALT states are also expected to vote against the bill, it looks like it will pass with little drama.  The Senate will take up the measure as early as tomorrow.  With Sen. Collins (R-ME) now supporting the bill, it should pass easily.

Fed speakers: Minneapolis FRB President Kashkari and Dallas FRB President Kaplan were on television this morning, both striking a cautious tone about future rate hikes.  Kashkari may be the most dovish member of the FOMC at this point; his argument is that the policy rate should not be moved higher until the inflation target is achieved.  Kaplan’s concern is that the yield curve is flattening, which should slow the pace of tightening.  These two presidents were voters in 2017 but will be non-voters in 2018.  As we noted before, the composition of the voting roster next year will be profoundly more hawkish than in 2017 even without the appointment of new governors.  Currently, fed funds futures project a 70% chance of a rate hike in March of 25 bps.

Another Houthi missile: The Saudi military indicated they successfully intercepted a ballistic missile launched by Houthi rebels from Yemen.  The Houthis said it was a Brukan 2H missile, a variant of the SCUD.  The missile was fired at Riyadh as was the earlier missile in November.  The last time this situation occurred, the Saudis declared it a casus belli against Iran, which they accuse of supporting and arming the Houthis.  So far, oil markets have not reacted strongly to the news, although oil prices are higher this morning.

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