It may be time for Wall Street to start sweating impeachment talk out of Washington again.
Investors have largely ignored special counsel Robert S. Mueller III’s probe into President Trump’s 2016 campaign — and subsequent moves by Trump to stymie the investigation, and the fallout over Mueller’s report — for the past year and a half.
But that wasn’t always the case. And the president Wednesday renewed the argument for markets to focus on the matter, amid gathering momentum among congressional Democrats to push for a formal impeachment inquiry. In a huffy Rose Garden performance, Trump declared legislative negotiations will grind to a halt until Democrats drops their investigations of him.
That would imperil top White House priorities that could also prompt markets to shudder, or worse. Namely, the administration is eager to forge congressional consensus on its reworked trade pact with Canada and Mexico. And as soon as late summer, according to Treasury Secretary Steven Mnuchin, the federal government will exhaust its borrowing authority unless Trump and Congress can agree to lift the debt ceiling. Failing to do so could have cataclysmic results for markets and the wider economy.
“You certainly want to start thinking about debt ceiling risk,” says GeoQuant CEO Mark Rosenberg, whose firm uses artificial intelligence-powered indexes to measure various types of political risk. One of his tools — the “Mueller Risk Index,” which measures the likelihood of Trump’s early removal from office — has been trending down since the release of the special counsel’s report.
But his measure of institutional support for the president shows Trump is at one of his weakest points in his ability to bend the branches of government to his will. And, significantly, it shows Trump’s grip weakening further as the summer wears on:
The index, Rosenberg explains, is “an aggregate of projections for a number of issues relative to institutional support — investigations of the president, legislative debates, legal battles, appointments and confirmations" and more, including the fight over the debt ceiling itself. He isn’t, however, ready to predict a debt default yet. “To the extent there’s an upcoming calendared event where the elevated institutional risk could have a market impact, that is it… But the pattern is pretty clear: So long as economic data supports the bull market, it’s unlikely that politics will derail it,” he says, adding the administration and lawmakers probably will forge a deal to head off a default.
A senior Trump official appeared determined to communicate that message to markets on Wednesday, telling CNBC’s Eamon Javers that Trump’s ultimatum to Democrats wouldn’t hold up progress toward deals on the debt ceiling and government funding, which is primed to run out Sept. 30. “Debt ceiling is must-pass, as is Govt funding,” the official texted Javers. “So no, that isn’t precluded by what happened today.”
It wasn’t long ago that investors drew a direct link between the investigations dogging the president and policy outcomes critical to economic performance.
In May 2017, the revelation that Trump pressured former FBI director James Comey to drop a probe of Michael Flynn, the president’s former national security adviser, set off one of the steepest stock dives of the year. The fear at the time was that Trump’s presidency would unravel before he could deliver major corporate tax cuts and deregulation.
Financiers flooded Washington analysts with questions about impeachment procedures and stopped in their tracks when Trump-related alerts popped up on their Bloomberg terminals. In June, when Comey testified before the Senate Intelligence Committee, both CNBC and Bloomberg TV carried the hearing live.
Interest cooled as summer turned to fall that year and it became clearer the tax cuts were more or less on a glide path to passage.
Lately, investors have appeared less spooked by the specter of Washington dysfunction: The S&P 500 actually gained about 11 percent during the month-long government shutdown that ended in January. And with deadlines for the debt ceiling and a budget deal still months away, it’s unlikely market participants will start to fixate on those negotiations soon.
“Obviously this is a concerning headline, but there is a meaningful difference between fiscal brinkmanship today versus fiscal brinkmanship weeks away from the debt ceiling deadline,” Isaac Boltansky, director of policy research at Compass Point, said in an email.
“There is a confluence of political risk in the fall with the debt ceiling and spending deadline, but I think the market still expects a resolution on these fiscal fights. Instead, these comments reinforce our bearishness on the prospects for other efforts such as infrastructure spending or prescription drug pricing.”
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— Fed looks to hold steady. WSJ's Nick Timiraos: "Federal Reserve officials were broadly comfortable with their make-no-moves posture on interest rates at their April 30-May 1 policy meeting. Many officials at the meeting said they expected a recent soft patch in inflation would be temporary, according to minutes released Wednesday. But several raised concerns about the implications for the economy if price pressures continued to defy expectations by holding at lower levels. Officials didn’t specifically raise the prospect of an interest-rate cut, according to the minutes. Investor speculation over a rate cut had increased in the run-up to the meeting."
New York Fed President John Williams to reporters on Wednesday: "I don’t see any strong argument...to move interest rates one way or the other.”
— Trade tensions rock global stocks. Bloomberg's Yakob Peterseil: "Stocks slumped globally on Thursday as the simmering trade dispute between the world’s two largest economies took a greater toll on markets. Safe assets were in demand, with gold and the yen gaining alongside the dollar and Treasuries. S&P 500 futures pointed to a big drop at the New York open after the Communist Party’s flagship newspaper published two commentaries assailing American moves to curb Chinese companies. Tesla sunk to below $185 in premarket trading, setting it up for a seventh day of losses. The Stoxx Europe 600 Index headed for its worst day in two weeks as automakers tumbled after an EU official said the U.S. was unlikely to start trade talks with the bloc soon while it’s preoccupied with China."
One early trade war winner: Active managers. MarketWatch's Chris Matthews: "Active stock pickers are having one of their best years since the financial crisis, and these money managers can thank rising U.S.-China trade tensions for their better fortunes, according to analysts at Goldman Sachs. The analysts, led by Arjun Menon, wrote in a Wednesday research note that 42% of large-cap active mutual funds are outperforming their benchmarks so far in 2019, well above the 34% rate averaged during the last decade. Menon argued that escalating trade tensions between the U.S. and China are one reason for this improved performance, noting that mutual funds have been underweight the 20 S&P 500 companies with the highest sales exposure to China."
European Trade Commissioner Cecilia Malmstrom said the United States might not be ready to work out a trade deal. (Denis Balibouse/Reuters)
— E.U. says U.S. not ready for a trade deal: “The U.S., which is embroiled in a tariff war with China while juggling negotiations with nations including Japan, Mexico and Canada, may not be prepared to start talks with the European Union on a proposed trade deal,” Bloomberg News’s William Horobin reports: " 'We are ready from the EU side to start and we have the mandate,’ Cecilia Malmstrom, the EU’s chief trade negotiator, told reporters in Paris on Wednesday. ‘But I don’t think the U.S. is ready to start on the tariff negotiations.”
“Malmstrom said she met with U.S. Trade Representative Robert Lighthizer earlier on Wednesday, which was the first time the two had seen each other in person since EU member states gave the European Commission the green light to begin negotiations more than a month ago.”
— Mnuchin: Next China tariffs at least a month away: “The United States is at least a month from enacting its proposed tariffs on $300 billion in Chinese imports as it studies the impact on American consumers, U.S. Treasury Secretary Steven Mnuchin said on Wednesday,” Reuters’s Jason Lange and Michael Martina report: “‘I’m still hopeful we can get back to the table. The two presidents will likely see each other at the end of June,’ Mnuchin said, adding that the impact of tariffs on American consumers was a key consideration in the U.S. trade strategy.”
“Mnuchin said the Trump administration is open to holding new talks with China if the two sides can proceed on the basis of previous negotiations.”
But he's pressing companies for their contingency plans. "Mnuchin said on Wednesday that he was personally questioning some of America’s largest companies about their plans for weathering the Trump administration’s trade war with China, including encouraging firms to reorient their supply chains and source their products elsewhere," NYT's Alan Rappeport writes. "Mnuchin said he spoke to the chief financial officer of Walmart — which recently warned that customers would see higher prices on furniture, clothing and accessories because of the duties on Chinese imports — about how the company plans to proceed."
— Why 5G is at the center of the U.S.-Chinese fight over Huawei: “5G has also played a role in the U.S. trade war with China, because of concerns that Huawei’s equipment and phones can be used to spy over wireless networks,” CNBC’s Todd Haselton reports. “Earlier this month, the Trump administration blacklisted Huawei’s equipment for use in America’s 5G rollout. Huawei wants U.S. business, however, and has argued that our 5G networks won’t roll out quickly if we don’t use its equipment.”
“The ban on working with Huawei also hit chip businesses that work with the company, including Broadcom, Intel, Xilinx and Qualcomm, some of which also have a hand in building out 5G networks and modems. Those companies will be missing out on new business as Huawei works to expand 5G networks outside of the U.S.”
— Steve Bannon wants to drive Huawei out of the U.S. and Europe, no matter the cost: “Driving Huawei out of the United States and Europe is ‘10 times more important’ than a trade deal with China, according to former White House chief strategist Steve Bannon,” South China Morning Post’s Jun Mai reports.
— Judge refuses to block bank subpoenas in defeat for Trump. The Post's Renae Merle, Michael Kranish and Felicia Sonmez: "A federal judge on Wednesday rejected a request by President Trump to block congressional subpoenas for his banking records, dealing the latest blow to the president in his bid to battle Democratic investigations into his personal finances. The decision in the U.S. District Court for the Southern District of New York could clear the way for Deutsche Bank and Capital One to hand over the president’s financial records to Democrats in the House. Trump’s attorneys could appeal the decision."
Wells Fargo, TD Bank have already handed over documents. NBC News's Leigh Anne Caldwell and Alex Moe: "A key congressional committee has already gained access to [Trump’s] dealings with two major financial institutions, two sources familiar with the House probe tell NBC News... Wells Fargo and TD Bank are the two of nine institutions that have so far complied with subpoenas issued by the House Financial Services Committee demanding information about their dealings with the Trump Organization, according to the sources... Wells Fargo provided the committee with a few thousand documents and TD Bank handed the committee a handful of documents."
— Tubman $20 on hold. NYT's Alan Rappeport: "Harriet Tubman — former slave, abolitionist, 'conductor' on the Underground Railroad — will not become the face of the $20 bill until after President Trump leaves office, [Mnuchin] said Wednesday. Plans to unveil the Tubman bill in 2020, an Obama administration initiative, would be postponed until at least 2026, Mr. Mnuchin said, and the bill itself would not likely be in circulation until 2028.
"Until then, bills with former President Andrew Jackson’s face will continue to pour out of A.T.M.s and fill Americans’ wallets. Mr. Mnuchin, concerned that the president might create an uproar by canceling the new bill altogether, was eager to delay its redesign until Mr. Trump was out of office, some senior Treasury Department officials have said. As a presidential candidate in 2016, Mr. Trump criticized the Obama administration’s plans for the bill."
— Amazon’s shareholder meeting turns testy: “Amazon’s annual shareholder meeting on Thursday turned hostile as shareholders demanded change on a number of issues, ranging from renewable energy use to equal pay,” CNBC’s Eugene Kim and Paayal Zaveri report.
“Dozens of shareholders, including current employees, joined the meeting in Seattle, presenting their case in over 12 different proposals. They included demands that the company take action on climate change through energy use, as well as improving diversity and pay equality in its workforce. Two of the resolutions asked for Amazon to stop the sale of its facial recognition software to government agencies, which the backers say raises concerns of racial bias and discrimination.” (Amazon CEO Jeff Bezos owns The Washington Post)
— E.U. regulator investigates Google over data privacy: “Ireland’s data privacy watchdog on Wednesday announced the launch of an inquiry into Google over the tech giant’s collection of data when it comes to online advertising,” CNBC’s Ryan Browne reports. “The Data Protection Commission, which acts as the lead supervisory authority for Google in the European Union, said its probe would examine whether Google’s processing of data in advertising transactions breaches the bloc’s privacy rules.”
— Mnuchin dismisses draft IRS memo about Trump’s taxes: “Mnuchin said Wednesday that a confidential IRS memo does not undermine the agency’s justification for denying lawmakers’ request for President Trump’s tax returns,” my colleague Jeff Stein reports. “Appearing in front of a House panel, Mnuchin said the Treasury Department and Department of Justice relied on separate legal reasoning for rejecting the House Ways and Means Committee request for six years of the president’s personal and business financial records.”
“Mnuchin has denied the returns by arguing that there is no legislative purpose for demanding them. But, according to the document, ‘the Secretary’s obligation to disclose return and return information would not be affected by the failure of a tax writing committee . . . to state a reason for the request.’”
- Intuit, Hewlett-Packard Enterprise, Best Buy, Weibo, Hormel Foods, Lions Gate Entertainment are among the big names reporting their Q1 earnings, per Kiplinger.
- The Census Bureau and the Department Housing and Urban Development jointly release April numbers on new-home sales.
- The National Economists Club hosts the Brookings Institution’s Aaron Klein for an event on the marijuana industry and banking.
From The Post's Tom Toles:
Sure, Brexit is still a mess, but Larry is just fine:
Another reason to keep your shoes clean: