US 10-year yields are up 3.5 bps to 4.63% and verging on the highest levels since April.

I’m watching the signals coming out of Congress very closely and gauging the market’s reaction. As I’ve long written, the three economic priorities of Trump have been:

1. Stock market gains/GDP growth
2. Bringing down the trade deficit
3. Bringing down the fiscal deficit

Those priorities are tough to square and on the weekend, we got signs that Republicans would try to stuff a single bill on the border and extending corporate tax cuts. Many Republicans would like to include some way to pay for those cuts and bring down the deficit but it looks like Trump is willing to use his clout to get the bill through and worry about paying for it later.

On the weekend, he floated tariffs as a way to pay for it. That math doesn’t really work and it gets exponentially worse with the WaPo report today saying the tariffs may only apply to a few industries (though Trump later denied that, I’m sure the WaPo has its sources).

It’s early days but it doesn’t look to me like the deficit is going to rank too highly on the list. That said, there are 220 House Republicans and it will only take 3 votes switching to submarine anything. Are there three Republican House members who want to make a name for themselves as fiscal conservatives and risk a fight with the President?

This article was written by Adam Button at www.forexlive.com.