Trump's impeachment effect on markets is minor

Outlook:

FX commentators are starting to name impeachment as a factor in directing traffic, but without saying quite how. Maybe it's implicit that the outright attack on Trump will prod him into new impulsive and economy-damaging actions, like screwing up next month's China trade talks. It's true that we have no evidence the US will soften its stance and accept any kind of compromise, the normal way a deal gets made. Trump's attitude is "my way or the highway" and China has already said it needs fairness, meaning the US has to give up something, too.

As a certified political news junkie, we are following the impeachment story closely although we do admit the effect on markets is minor so far and may never develop into a market-mover, as we have seen before. Equities, for example, are responding to the prospect of cheaper money and ignoring impeachment.

For what it's worth, we offer a summary below, and thanks to our (mostly) foreign readers who write they appreciate our comments. One of the most remarkable things about the impeachment process is that investigative reporting and heavy-duty analysis is being carried out not only by the traditional liberal-leaning press (Washington Post, New York Times, Bloomberg) but by the traditionally Republican-leaning Wall Street Journal. In fact, the WSJ has been the cutting edge on more than one aspect. If you really like following this story, you might consider one of the many cheap WSJ subscription offers out there. You can get 12 weeks for $12, for example. Just be careful not to get inadvertently roped into an auto renewal at full price.

Meanwhile, the economy still matters. Yesterday's data was nothing much, but today we get durables, up a surprising 2.1% last time (vs. 1.2% expected) and forecast not so nice today, chiefly because Boing is messy. This decent performance may be one of the factors convincing traders the US economy is nowhere near the bad shape of Germany.

Before we get to today's consumer spending, the other happy data point in the US pantheon, we should take a look at GDP, affirmed at 2% yesterday in the third iteration for Q2. The main takeaway is that growth is slowing from the 2.4% average over the past 10 years. Nobody forecasts a rate at that pace anymore. We get the Atlanta Fed's Q3 version today, but it's not likely to go over 2%. This is meaningful for several reasons. First, the "4-5%" Trump claims he can get is unrealistic. It always was, but never mind. He is sure to lay blame somewhere other than his own doorstep. Forbes takes a report from the San Francisco Fed about how "slow is the new normal" because the labor force is not growing, for demographic and other reasons, and productivity has peaked as new game-changing technology has peaked. The correlation of labor market productivity with GDP is stunningly high. The only antidote may be massive investment in alternative energy. A key point in this deduction is that lower interest rates will not goose activity.

Today's personal income and spending will influence our Q3 expectations. Consumption is expected to be flat after a rise in incomes of perhaps as much as 0.4%. That means the savings rate will go up. The core deflator is forecast higher at 1.8% from 1.6%, vindicating hawkish Fed policy makers, even if the headline PCE deflator remains flat at 1.4%. The Fed claims to watch the deadline number, not the core, but the press and analysts all look at core anyway. Go figure. It's possible the FX world sees okay growth as nice and something that will suffice, regardless of inflation. After all, other countries are getting no growth (or inflation), either. The US is the most robust and resilient of the world economies, and on that basis alone, deserves the safe haven status, regardless of hideously disgusting politics.

Politics: Some misguided souls ask "What's wrong with a president seeking to find out if another political figure has behaved corruptly or illegally?" The answer lies with timing. Trump had over two years to investigate this issue. He chose to do it only after Biden became the front-runner in polls against Trump in the lead-in to the 2020 election. Trump's motives were personal and political.

Secondly, the memos describing the calls were hidden away on a super-secret place reserved for classified material (of which there is none in this case). That's the cover-up. Even before the cover-up became known, the whistleblower's information was shocking and convincing enough that over 80 members of Congress shifted stance on impeachment. They can't all be hacks or in thrall to Speaker Pelosi. Last Sunday the number standing behind impeachment was 135. By Wednesday night, it was 218, the number needed to pass article sof impeachment (we missed one yesterday).

Trump asking Ukraine to investigate Biden and son is not a crime. It is a violation of a law saying a president cannot ask a foreign government for something that benefits him personally and politically. It is now without question that Trump violated his oath of office by acting in personal self-interest. This is not about law (what is a crime) or about politics (what is dirty tricks). Violating this law leads to the charge detailed in the Constitution if "high crimes and misdemeanors"—and abusing high office to seek personal political advantage from any foreign entity qualifies. The relevant law is 52 U.S.

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This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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