Though stocks finished off their lows on Wednesday, it’s obvious that investors weren’t happy with Robert Mueller’s remarks. The main benchmarks sunk after Mueller’s statement, as investors perceptively assessed that the special counsel was effectively exhorting Congress to screw its courage to the sticking post and move ahead with impeachment.
With the prospects for impeachment looking greater than ever (even as Pelosi and Schumer continue to resist), it’s easy to see how this could further destabilize markets.
But offering a novel connection between two of the most dominant political narratives of the year, one analyst argued that Mueller’s statement might make it more difficult for the White House to negotiate an amicable resolution to the trade fight while also convincing China to harden its stance.
In comments emailed to Bloomberg News on Wednesday, Veda Partners’ Director of Economic Policy Henrietta Treyz claimed that Mueller’s remarks may have hardened China’s stance in the trade negotiations by providing “at least a scant amount of optimism that Trump could be out of office soon”…making Beijing “less likely to capitulate, if they were planning to.”
“The positions of both sides just got a little bit more entrenched,” said Treyz, who believes the market’s midday dip was inspired by Mueller’s comments.
Mueller’s comments likely made it harder for Trump to back down by giving him “an extra story line” beyond the investigations. Trump’s voters would “likely see him as weak if he backed down now.”
Treyz added that the trade war is the “most pressing thing” for markets right now, adding that she expects more selling pressure ahead because investors haven’t fully priced in the third and fourth tranche escalations that could follow over the summer.
While Treyz makes a compelling argument for why the impeachment scrutiny might force Trump to stay the course on trade, if stocks continue to erase more of their Q1 gains and move closer to the 2,300-2,400 level, the pressure on the White House to capitulate might soon become unbearable.
Then again, now that the departures of two senior NY Fed officials have left the PPT in limbo, who is even left to trigger the ‘Trump put?’