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China's Xi Set to Present Top Political Body

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Xi’s power swells, tax reform prospects get shakier, and John Taylor gets an endorsement from Senate Republicans. Here are some of the things people in markets are talking about.

Xi Jinping Thought

Chinese President Xi Jinping may move to tap a successor on Wednesday, but he’s already succeeded in positioning himself to exert immense influence over the world’s second-largest economy for decades to comeIn the final day of congress, the Chinese Communist Party approved a charter revision that elevates Xi to a status on par with Mao Zedong and Deng Xiaoping, while also declaring him the party’s “core” leader – bolstering his power ahead of the leadership reshuffle on Wednesday. The composition of the Politburo Standing Committee will offer clues on Xi’s sucession plan. Liu He, a close adviser to Xi, was re-named to the party’s central committee, viewed as an indication that significant economic reforms aren’t immiment. The absense of Wang Qishan from a reported list of committee members implies that Xi is sticking to the party’s unwritten age-based retirement rule.

No Free Lunch

U.S. President Donald Trump dined with Republican senators on Tuesday in an attempt to build support for a tax reform plan whose details have been muddled and inconsistent. Tension between the White House and lawmakers remains palpable, putting progress on legislative matters in jeopardy – and it’s unclear that the lunch helped resolver any disputes. What’s more,  even among Republican members of Congress, there are deep divisions on how to proceed with tax reform. Earlier in the day, Trump’s feud with Tennessee Senator Bob Corker escalated after the congressman said the president’s legacy would be “the debasing of our nation” and that he should stay out of the tax debate. Trump fired back on Twitter, calling Corker a “lightweight” who “couldn’t get elected dog catcher.” Arizona Senator Jeff Flake announced on Tuesday that he won’t stand for re-election, excoriating Trump in an address to his colleagues.

Show of Hands?

During that lunch with Senate Republicans, Trump also polled the room on their preferred candidate to lead the Federal Reserve by asking for a show of hands on potential options. Senator Tim Scott said Trump mentioned Stanford University economist John Taylor, Federal Reserve Governor Jerome Powell, and Chair Janet Yellen – and that Taylor garnered the most support. The U.S. dollar caught a bid on that news. So did Treasuries, with 10-year yields extending their push through 2.40%. Rates traders have been scaling up bets that a relatively hawkish Fed Chair will further flatten the yield curve. Some economists, however, are speculating that a Taylor Fed could prove more dovish than anticipated should he believe that potential tax changes and deregulation can meaningfully boost the economy’s supply-side potential.

Caterpillar’s Metamorphosis 

The Dow Jones Industrial Average soared to a fresh record with a pair of stocks accounting for the lion’s share of the gains in the blue chip index. 3M Co. posted its biggest advance in eight years on strong earnings and an upgrade to its profit forecast. But the bigger news from a macro perspective was Caterpillar Inc., whose robust earnings and third straight quarter of sales that exceeded analysts’ expectations testified to the strength of the global economy. West Texas Intermediate futures rose more than 1 percent amid a report the OPEC nations are considering how to keep a supply glut from re-emerging when they do decide to end their current agreement to curb production.

Futures Up

Nikkei 225 futures are pointing to a higher open, leaving the Japanese gauge poised to extend its record streak of gains on Tuesday. S&P/ASX 200 futures are also in positive territory in the pre-market session. It’s another light day for economic data in the region, with Australia’s third quarter headline inflation rate forecast to accelerate a tick to 2 percent year-on-year. The annual trimmed mean and weighted median core measures are each expected to rise to 2 percent from 1.8 percent. Goldman Sachs is getting optimistic on Australian wage growth, something that’s likely a prerequisite to a hawkish turn from the Reserve Bank of Australia.

What we’ve been reading

This is what caught our eye over the last 24 hours.

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