Trump, the FBI and the Russians

There seems to be little else that the markets are talking about these days than Trump’s handling of former FBI Director Comey and the allegations that Trump had revealed classified information to Russian officials last week, the allegations becoming fact following Trump tweets affirming the rumours, the justification being that it was in the best interest of the U.S and Russians.

So, what’s all the fuss about, well when you see the Dow slide 1.78% in what has been a particularly low vol environment, with the Yen pulling back the Dollar to ¥110 levels and gold bouncing just shy of 2% at a time when the FED is expected to make at least 2 further rate hikes for the year, you know there is something askew.

For now the markets are beginning to ponder what lies ahead should Trump decide that the best course of action would be resignation rather than battle.

It all started with Comey being axed last week and there was clearly expectation from the U.S President that the details of the conversations had between the two would be left behind closed doors. Sadly, Trump has learned one of many lessons in such a short time period in office and the simple truth is that there are more people against him than for him.

The biggest concern over the Comey firing is the revelation that Trump had asked Comey to bring an end to the investigation into Michael Flynn, the former national security adviser. Trump’s mistake was the fact that he just didn’t know that Comey’s a note taker and once it’s on paper it’s going to get out, Trump’s ousting of Comey all but ensuring its release.

We had seen the markets take the ousting of Comey in its stride last week, whilst the response was altogether different once the news hit the wires of the request to end the investigation.

We’ve seen gold on the bounce this week, up 2.68% by Wednesday’s close as the Justice Department announces the assignment of former FBI head Mueller to investigate apparent Russian interference into the 2016 presidential election.

The news comes at a time when Trump is under increase pressure following the Comey allegations, the constant accusations of the Russians and the Trump administration colluding to win the election now beginning to gather steam. Trump has already acknowledged that he had shared classified information to Russian officials last week, which he has attempted to justify, though there is little justification for such disclosures.

Is there anything else currently covered under the rug for the markets to have to consider in the days ahead? The scandals are now being compared with Watergate and the comparison may well be justified, though time will tell whether an impeachment will follow. As a businessman and CEO, Trump would certainly have had to resign in the face of such scandal.

The risk aversion through Wednesday was evidenced in the slide in the Dow, which ended the day down 1.78% reversing gains from the start of the week, with European markets responding in kind through the early part of the European session, the FTSE100 down 1.04% at the time of the report with the CAC40 down 1.08%, the DAX managing to perform somewhat better, down 0.67%.

Futures are pointing to a further decline in the red at the open with the Dow Mini down 48 points at the time of the report.

We may see the markets enter a period of calmness in the days ahead however, as the markets begin to consider what lies ahead for Trump and the Republicans, the investigation now likely to drive market risk sentiment, though with so much at stake we wouldn’t expect a full recovery.

In the days ahead we will also begin to hear speculation of what to expect in the markets should Trump be called to resign or worse yet be impeached. We can certainly expect the Trump trade to begin to unwind, with the expectations of a fiscal stimulus package likely to fall away, with doubts likely to rise over whether the Republicans will be in a position to roll out tax reforms, any support from the Democrats now highly unlikely for any bills that need to be passed through.

With the equity markets on the slide, the Dollar has managed to steady the shop with the Dollar Spot Index up 0.02% at 97.596, though the volatility will likely continue as the anxiety weighs.