The US dollar opened higher in Asia and retained those gains through the European morning. The greenback has recouped most of the pre-weekend losses recorded in the wake of the indictment of a fourth former Trump Administration official by the special investigation into Russia’s involvement in last year’s election. 

However, two-weekend developments seemed to blunt the impact of the guilty plea and admission of cooperation. First, it remains a mystery of why Flynn lied to the FBI when contact with Russia during the transition period was not illegal. Although some suspect that there is more to the story that will be ferreted out in the coming weeks, it is not clear where the investigation is headed. Also, the Republican Party has not abandoned the President by any means, and without this taking place, impeachment talk, which event markets have upgraded, seems premature at best.  

More importantly, the Senate passed its version of tax reform. It was not clear before the weekend that this would happen. The approval took place early Saturday morning. The next step is the reconciliation of the House and Senate version. The differences are so profound that one cannot simply assume that the bill that emerges from the reconciliation committee will look anything like the Senate or House versions.  

Moreover, a new twist to the plot emerged after the Senate passed its bill. President Trump indicated that he is now willing to compromise over his earlier demand that the corporate tax rate be cut to 20%. He now says 22% may be good enough. That two percentage point difference is worth around $200 bln over the next decade.  

Without knowing more details, it is difficult to determine the economic impact of the tax reform. A poll conducted a month ago, found nearly half the economists surveyed by the National Association of Business Economists expected growth to be 0.20%-0.39% stronger in 2018. Opinion polls suggest in the battle for public opinion, the tax reform is not popular. The irony is not to be lost, in the heart of the economic crisis, many who voted for the tax reform had objected to the nearly $790 bln economic stimulus, on the grounds that the country could not afford it. Now with the economic expansion cycle among the longest in modern history, and possibly accelerating this year, many of the same Senators approved a $1 trillion tax cut.