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Impeachment hearings come under the public spotlight — markets brace for knee-jerk reactions

 

  • The impeachment proceedings against US President Donald Trump move to a more public forum on Wednesday.
  • The talks, which have been held away from public scrutiny, and literally underground in a basement office will now be broadcast, coast-to-coast, on national TV networks.
  • The stakes are raised for the president, the economy and the markets. What is revealed in the hearing and the response of the president could very easily throw more uncertainty into the mix.
  • Whilst the only certainty is continued uncertainty, the challenge is for traders and investors to read the signs that might help them anticipate the next move.

 

Deutsche Bank recently released a report to its clients detailing the top 20 risks facing the financial markets in 2020. The impeachment of Donald Trump, which has until now been something of a slow burn came in fifth out of 20.

20 risks to markets in 2020

  1. Continued increase in wealth inequality, income inequality and healthcare inequality.
  2. Phase one trade deal remains unsigned, continued uncertainty about what comes after phase one.
  3. Trade war uncertainty continued to weigh on corporate capex decisions.
  4. Ongoing slow growth in China, Europe and Japan Triggering significant US dollar appreciation.
  5. Impeachment uncertainty & possible government shutdown.
  6. US election uncertainty; implications for taxes, regulation and capex spending.

 

Source: CNBC

Putting the current ranking into perspective, risk number six on the list is not insignificant.

Possibly the most important feature of ‘risk five’ is that it is building momentum and likely to move up the charts rather than down. Analysts and traders have had some time to grapple with the ebbs and flows of the US-China trade war. Surprises are typically ‘known surprises.’ The impeachment process is different, and it can be said with some uncertainty that it will at least in the short-term snowball into a key driver of market direction. Wednesday will see the spotlight literally shone on the proceedings of the impeachment hearing.

Source: The Guardian

Billions of dollars of value rest on how the president reacts to the hearing. Since Donald Trump took up the US presidency in 2016/17 the financial markets have learned to accept the price volatility that can be brought on by some of the president’s announcements. Trump has brought his own brand of government style to the White House and it’s a significant shift from the orthodox approach of the career politicians who preceded him.

Trump has fully engaged with social media, and in particular, Twitter. It remains one of his favourite means of communication and Trump has shown a significant appetite to conduct international policy using comments of less than 280 characters. His public speaking has also kept the direct and ‘common man’ approach, which he used on the campaign trail to pick up votes from those who wanted a break from the political status quo.

Source: Vox.com

The tone as well, as the means of communication, is a world away from the long wordy statements of Obama and Bush. The killing of IS leader Abu Bakr al-Baghdadi was described by Trump as: “he died like a dog, he died like a coward.” On the sensitive topic of the US-China trade war, he said on 23rd August: “we don’t need China and, frankly, would be far better off without them.”

As Vox.com puts it: “investors used to ignore Trump’s weird antics. They can’t anymore.”

Source: Vox.com

Kristina Hooper, chief global market strategist at investment management firm Invesco, is one who is giving more credence to the social media posts of the president:

“I wouldn’t necessarily say it’s the tweets themselves, but it’s the content of the tweets… For so long, the tweets were more opinion as opposed to actions or decrees. What we’ve seen this year is a movement more into actions.”

Source: Vox.com

Source: Twitter

The above tweet from May highlights Hooper’s point. Other comments from 23rd August show the trend is now well established. On that Friday, tweets from the Trump account took the Dow Jones Industrial Average down 600 points. The message that Trump would expect American companies to move away from business relationships with China caused the market to tank.

The long-term chart of the stock market performance under President Trump shows a healthy enough return. His tenure is certainly outperforming that of the last Republican president George Bush Jr. What is more of an issue for analysts and traders is the short-term volatility generated by the somewhat ‘combustible’ nature of the current political environment. Taken over a period of months, the performance of stocks is ironed out, but the intra-day volatility can shake investors out of positions.

Source: Macrotrends

 

This time it’s personal

Investors with market positions have every reason to be on guard for tweets from the White House. The strongest and most extreme comments have come when the president’s position is itself threatened and that is most certainly the case with this impeachment. The ability of the president to influence the markets is growing just as the impeachment hearing picks up speed.

All the cable news channels will be screening the impeachment hearings live. One almost guaranteed viewer is the president himself. The question is whether and how he responds to the events. Might he attack the witnesses in a way the public feels is unfair? Or will he share a riposte that takes the heat out of the situation.

 

Viewing figures

The public hearing, which starts Wednesday is not an integral part of the impeachment process. It is essentially an opportunity to share information with the public. Trump and the markets will both be hoping the broadcast becomes a major non-event. This could be wishful thinking, even should popular opinion swing to support the president, there is little chance of that not being repeatedly shared by the man himself. A move in the other direction threatens his chances of a second term — a process that might derail the US-China trade talks and leave the door open to less business-friendly Democrat party candidates.