Market movers today
After the weak PMI and Ifo at the start of the week, it’s a fairly thin calendar today where most focus will be on the developments in the impeachment story in the US. Also markets will keep an eye out for speeches from ECB and Fed officials . ECB’s Coeuré (twice) and the Fed’s Evans, George and Kaplan (overnight) are on the wire. In Scandinavia, focus will turn to the Norwegian LFS report.
Selected market news
Impeachment concerns have risen in the US as a whistle blower within the intelligence community claims that President Donald Trump repeatedly pressured Ukraine’s President to investigate Hunter Biden, former Vice President Joe Biden’s son, on a phone call back in July. Under the constitution the President can be impeached for “treason, bribery, or other high crimes and misdemeanours “, which is open to interpretation. Overnight, House speaker Nancy Pelosi announced a formal impeachment inquiry into the President presumably enlisting a foreign power to help influence presidential elections. Trump has denied all wrongdoings and stated he will release the phone call transcript later today. Yesterday, US stocks reacted negatively to this new political risk, also reflected in current ‘red’ Asian indices. This morning, however, US equity futures are roughly flat.
Trump is only the fourth President to face impeachment proceedings; the last was Clinton in 1998. So far no President has been directly removed (Nixon resigned). The impeachment enquiry will start in the House of Representatives where only a simple majority is needed to bring charges forward (Democrats need no Republican votes here). This could lead to a trial in the Senate where the Chief justice of the US Supreme Court presides and where a two-thirds majority is needed to convict the President. Meanwhile a Senate vote would likely require c.20 Republicans to vote against their own party making it less likely unless new information reveals and confirms more severe wrongdoings by the President.
There has been much focus on USD liquidity over the last week. Yesterday, New York Fed conducted two repo operations. Another overnight for at least USD75bn and its first two-week term repo operation for at least USD30bn. New York Fed accepted bids for USD75bn and USD30bn, but both operations were oversubscribed. It means USD105bn of liquidity was added to the market – up from USD65bn on Monday. Effective Fed Funds was unchanged 1.90% on Monday; hence, still slightly above the mid-point of Fed’s target range. Even though Fed has added more liquidity, USD funding market remains anxious as seen in widening of 3M USD FRA-OIS. This adds increasing pressure on the Fed.
Yesterday, the UK Supreme Court ruled that the prorogation of Parliament was unlawful meaning the Parliament will return later today. According to our UK economist, this ruling is a clear blow to PM Boris Johnson’s authority (and not least his chief advisor Cummings) yet no game changer for the Brexit end-game as the Delay Bill has already been passed. We think the most important element for markets is whether the Brexit deadline is delayed or not and we do not believe this ruling has affected that probability.
As expected the Reserve Bank of New Zealand kept policy rates unchanged this morning at 1.00%. Meanwhile, NZD rose modestly on the announcement as RBNZ did not deliver explicit signals of future easing amid rates markets having priced almost 2 cuts in 12M.
