Morning Call For Wednesday, Oct. 18

OVERNIGHT MARKETS AND NEWS

Dec E-mini S&Ps (ESZ17 +0.15%) this morning are up +0.16% at a new record nearest-futures high and European stocks are up +0.45% at a 5-month high. Optimism that the Trump administration will pass a tax reform plan continues to underpin U.S. equity prices, while speculation that the ECB will remain accommodative for longer in lifting European stocks. An introductory speech by ECB President Draghi today at a conference in Frankfort shed no light on ECB plans, while the markets speculate that President Trump will insert a hawk to be the next Fed Chair. A person familiar with the process said that President Trump will name his choice for the next Fed Chair before he leaves Nov 3 on an 11-day trip to Asia and Hawaii. Asian stocks settled mostly higher: Japan +0.13%, Hong Kong +0.05%, China +0.29%, Taiwan -0.03%, Australia +0.01%, Singapore closed for holiday, South Korea -0.03%, India -0.08%. Chinese stocks gained ahead of data tomorrow on China GDP, industrial production and retail sales. Japan's Nikkei Stock Index rose to a new 20-3/4 year high as polls suggest Prime Minister Abe's ruling party may show its best election result in more than three decades after this Sunday's elections in Japan. Abe's Liberal Democratic Party is projected to win as many as 303 seats, close to 2/3 of the 465 seats up for election. That would be the strongest showing since 304 seats were won in the 1986 election.

The dollar index (DXY00 +0.21%) is up +0.20% at a 1-week high on hawkish comments from San Francisco Fed President Williams and Philadelphia Fed President Harker who both look for Fed rate hike at the Dec FOMC meeting. EUR/USD (^EURUSD) is down -0.13% at a 1-week low. USD/JPY (^USDJPY) is up +0.52% at a 1-week high.

Dec 10-year T-note prices (ZNZ17 -0.22%) are down -10 ticks.

San Francisco Fed President Williams said the U.S. economy is stronger than in looks and that inflation softness in overstated. He said the Fed should aim to raise interest rates at the Dec FOMC meeting and three more times next year.

Philadelphia Fed President Harker said he sees one more rate increase in 2017 and notes that high prices for equities and other assets could be an argument for continued, steady pace for rate increases and "that's why I would like to prudently move up to the neutral real rate as quickly as possible."

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