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Nomura: Trump Impeachment Unlikely, Delay To Legislative Agenda More Certain

By Mark Melin. Originally published at ValueWalk.

Markets should not be worrying about President Donald Trump being impeached, Nomura said in a research report out Wednesday morning. Trump impeachment is “unlikely.” The real concern is what happens to the Trump agenda?

Trump Impeachment
Trump Impeachment unlikely says Nomura in a new report

Trump Impeachment ?   Comey issue likely to play out in Senate testimony

The firestorm of news over President Trump’s firing of former FBI Director James Comey significantly heated up when The New York Times reported that notes Comey took from a meeting with Trump indicated the president asked him to end an FBI investigation.

According to anonymous Department of Justice sources, citing a memo Comey wrote, Trump asked to “let go” the investigation into former national security advisor Michael Flynn over his ties to Russia. The report was later confirmed by NBC News, the Washington Post, CNN, the Associated Press and Reuters, all of whom cited unnamed sources.

“I hope you can see your way clear to letting this go, to letting Flynn go,” Trump reportedly told Comey, according to the memo written immediately following the Trump meeting.

James Comey is expected to testify in front of the Senate next week, and courts have ruled based on FBI notes such as those which Comey allegedly took.

Trump Impeachment a long shot

Nomura, for its part, thinks it is too early in the process to play the impeachment card.

With the S&P 500 down near 25 points in early afternoon trading, they say the market impact of a constitutional crisis is premature.

“Impeachment still seems a distant prospect, meaning negative market effects are likely to be more limited over the medium term,” Kevin Gaynor and a team of analysts wrote in a note titled “Trump: Stimulus plan more likely to be derailed than presidency.”

The hurdles for impeachment are high. There are two methods to remove Trump from office, both of which seem “unlikely,” Nomura said:

Impeachment – This requires evidence that a crime has been committed, a simple majority in the House and a two-thirds majority in the Senate for the president to be removed from office. The timeframe for Bill Clinton was around three months, but this excludes the extensive investigation time. To date, no US president has been removed from office by impeachment.

Removal through 25th Amendment – This requires Vice President approval and a majority in the cabinet to say Mr Trump is unfit for office. If Mr Trump protests, a two-thirds majority in both the House and Senate is necessary for him to lose office.

If Trump is removed, Vice President Mike Pence, who Nomura points out is respected by Republican leadership, is next in line to replace him followed by House Speaker Paul Ryan.

“Removing Mr Trump will require a two-thirds majority in the Senate, and the chances of Republicans voting to impeach their own president seem low,” the report observed, noting that if Trump is removed it could further energize the anti-establishment base that got him elected.

There will likely be market implications, the issue is how long-lasting could it be?

“This means that any resulting increase in implied volatility and risk-aversion is likely to only be temporary,” the report said, saying there is more damage done to the potential for Trump to garner market-moving legislative accomplishment. “There is also the potential for the story to subside if the new FBI director pursues the Russia angle more aggressively.”

From a market perspective, Nomura thinks this could lead to trend continuation in bond and currency markets.

Any sort of delay or new distractions in DC (which may result because of the latest news) will likely further push back fiscal stimulus prospects and that means less support for the economy, and all else being equal potentially for equity markets. This should lead investors to gravitate even more into yield trades such as in IG credit and long UST duration. For the Fed, we do not think this will derail a June rate hike in view of the latest job numbers. Although the Fed has not fully embedded fiscal policy into its thinking, we will be keenly watching for any updates from Fed speakers if they are dialling back fiscal stimulus drivers and what that may mean for the pace of hiking and timing of a Fed balance-sheet unwind. Markets have been taking one hike at a time anyhow and with the latest inflation disappointment markets are already questioning how will the Fed see through this deceleration. In the end, a slowdown in the inflation trajectory matters more for the Fed’s future hikes (after the hike in June) and we continue to like fading TIPs breakevens.

The post Nomura: Trump Impeachment Unlikely, Delay To Legislative Agenda More Certain appeared first on ValueWalk.

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