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What does Trump's impeachment mean for markets?

14 January 2021

President Donald Trump has been impeached by the House in the aftermath of last week’s riots on Capitol Hill. Trump now has the unenviable mark of being the only US President to be impeached twice, occurring just days before he is to hand over the reins of the White House to President-elect Joe Biden on 20 January. Yet markets cared little for the political drama, as US stocks continue to struggle for meaningful direction.

Here’s how US benchmark indices fared on Wednesday, with tech counters leading the pack:

At the time of writing, S&P 500 futures can only inch higher, although it continues flirting with overbought territory (14-day relative strength index nearing the 70 mark). However, US equities may receive a double boost on Thursday!

Biden to unveil stimulus plan details

The incoming US President has been teasing global investors about the “trillions” that could be poured into the US economy to help it overcome the pandemic. Such measures are set to be announced later today, which may include US$ 2000 stimulus checks for American households. A stubbornly high weekly jobless claims print, also due on Thursday, could underscore the need for more fiscal stimulus.

Stock markets had clearly reveled at the thought of more incoming US fiscal stimulus, especially in light of Democrats enjoying significantly less political resistance after winning both Georgia Senate runoffs. The S&P 500’s current record high was registered on 8 January, the same week those polls concluded.

Should markets like what they hear, then the reflation trade may resume across asset classes, potentially recharging the rotation play in equities while sending Gold higher as investors resort to assets that may help them outpace stimulus-fueled inflationary pressures.

Fed Chair to settle tapering debate?

Fed Chair Jerome Powell also has the opportunity to lay down a solid marker in the tapering debate that has engulfed markets his past week. Given the forward-looking nature, markets have been trying to pre-empt when the Federal Reserve might ease up on their bond-buying programme. Markets thought it could even happen sometime this year, in anticipation of a US economic outperformance that’s been aided by the trillions in both fiscal and monetary policy support.

The shift in narrative sent Treasury yields spiking, Gold prices stumbling, and the Dollar rebounding. Fed officials have recently sent mixed signals about when they might unwind some of their policy support, although the latest commentary by Fed Governor Lael Brainard appears to pour cold water on the idea.

A more definitive statement by the Fed Chair himself could cause major moves across asset classes. Should Powell shut the door tight on the very notion of tapering in 2021, that could see Treasury yields unwinding more of their gains, dragging the Greenback back down with it, while helping restore Bullion to recent highs.



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