This article was written by Adinah Brown from Leverate.
So… I don’t know if anyone heard, but US President Donald Trump is embroiled in another scandal. I know, pick one, right? There was Russia influencing the outcome of the US elections, the firing of top brass national security advisors, the dropping of highly classified information to the Russians, senate enquiries, testimonies by a six foot seven man which wasn’t even in relation to playing basketball…and covfefe, whatever that is.
This row of scandals has put in motion steps towards a very sensitive subject – the possible impeachment of President Donald Trump. You’ve probably heard all the back and forth, so I won’t rehash the details, but for the two of you who might not know, it relates to the James Comey affair and whether there was an obstruction of justice on the part of the President.
Impeachment and what it means for markets
With a special counsel having been appointed to investigate potential links between Mr. Trump’s advisors and the Russian government, the free world is on tenterhooks in anticipation of what the outcome may be. Therefore, the important question must now be asked; how can we best trade the markets on the back of a potential impeachment?
Looking at the reaction to the market when impeachment discussions were first made, it is interesting to note that there was a quick but short-lived drop of US stocks. This sort of sell-off is not unusual for a big piece of negative news about the White House, and reflects some of the market’s sentiments on Trump’s importance to business.
The sectors that are likely to show volatility are the ones that would most benefit from Trump’s fiscal policies. More talk about a possible impeachment or weakening of Trump’s political position would cast doubt over some of the activities he wants to achieve, such as curtailing the Dodd-Frank bill. This makes the banking sector vulnerable, as these measures were likely to provide relief for the regulatory red tape that has enveloped the sector since they tried to drive the world off a cliff in 2007.
When the news first broke there was also a drop in the dollar, forestalling a more profound devaluation should news of impeachment develop. The reality is that there are other significant pressures on the dollar, and it would be too much at this stage to assume that talk of impeachment would be the most significant driver, considering the current slowdown in the US economy.
Role of the media
However, if the likelihood of impeachment increases, it will certainly become a larger factor, particularly if world banks get a sense that the US dollar’s status as a safe haven currency is under threat.
In the coming weeks there are a few phases that will be key in this saga. At this stage, media driven talk of impeachment has started the ball rolling and will be critical in creating a sense of concern amongst traders. The activities surrounding the obstruction of justice proceedings and any subsequent revelations will also create similar pressures, depending on the outcomes and coverage. Ultimately, the conclusion of the obstruction proceedings will give confirmation of the potential escalation to impeachment. Whatever the decision, markets will move strongly.
As it stands for now each presidential tweet and each news report has the ability to move markets. Markets are tuned in and will be trading on the news, so you need to be tuned in to media and the obstruction proceedings. And if the President is found guilty of obstruction of justice, then get ready for a bumpy ride.