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How might Trump's Senate impeachment trial affect markets?

10 February 2021

Former US President Donald Trump’s second impeachment trial in the Senate has just been given the green light to proceed, and opening arguments are set for noon on Wednesday. Trump’s chances of being acquitted once more are high, considering that the Senate must have a two-thirds majority, or 67 votes, to find the former president guilty. In other words, Democrats would require at least 17 Republicans to vote to convict Trump, which is a tall order to say the least.

The good news for markets is that, lawmakers on both sides are hoping for a swift trial. Republicans want to limit the political fallout, while Democrats hope to quickly move on with rolling out President Joe Biden’s agenda.

The potentially shorter timeframe for Trump’s second impeachment trial would mitigate the risk of political noise disrupting the risk-on proceedings in global financial markets. At the time of writing, futures contracts for the S&P 500 are edging higher in an attempt to pare Tuesday’s declines. Asian stock markets are putting in a mixed shift so far this morning, while the dollar, gold, and oil are little changed.

Markets continue to pin hopes on fiscal stimulus rollout

Global investors are likely to ignore any political drama emanating from the Senate during this trial, unless it has repercussions on the progress of the next round of US fiscal stimulus. President Biden’s $1.9 trillion proposal faces dilution risks, even as he extends his hand across the political divide in a bid to obtain a bipartisan agreement.

Yet markets appear more concerned about the timing of its rollout rather than the headline figure, hoping it will arrive sooner rather than later. Should this show of partisanship in the Senate amid the impeachment trial bleed over into fiscal stimulus talks and delay its rollout, that could trip up risk-taking activities in the markets. The political noise out of the impeachment trial, if it grows loud enough, could dampen the risk-on sentiment in US stocks.

In focus: Powell’s speech, US January inflation

The reflation narrative in the markets could react to more cues out of Fed Chair Jerome Powell’s speech, as well as today’s release of the US January CPI figures. Investors are already trying to pre-empt when the US economy would experience the inflation overshoot that’s possibly driven by more incoming fiscal stimulus. Such conditions might then trigger the much talked-about Fed tapering, which may then pave the way for rising interest rates. More clues about that timeline would help global investors ascertain their allocations in equities versus bonds.

With the 10-year Treasury yields having made another run for the psychologically-important 1.20 mark this week, Powell may attempt to bat down yields once more. Such comments may push the dollar index (DXY) lower while lifting gold prices.

However, should the January inflation data show another month of tepid price pressures as forecasted, that may dampen bullion demand while offering support for the DXY.



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