So, the assumption heading into the overnight session was that Rod Rosenstein’s decision to appoint a special counsel (or “councel” as Trump spells it) to oversee the investigation into Russian meddling with the US political process would provide a reprieve for risk assets.
And that assumption was (somewhat) correct until exactly 5:00 a.m. when Reuters reported that Trump associates had 18 previously undisclosed calls, e-mails, etc. with Russians during the last seven months of the 2016 presidential race. The risk-on mood promptly evaporated although things are holding up reasonably well this morning in the US even as Brazil crashes and burns.
As we wrote first thing this morning, it’s not entirely clear that Trump or anyone in the administration should be excited about the idea of special counsel looking into Russian interference, and in fact it kinda seems like it will invariably make things worse for the President and thus for markets. As it turns out, analysts mostly agree.
Below, find a rundown complete with zingers like this:
…the Deep State playing a long game of death by a thousand cuts … that Trump squeezes lemon juice into with each tweet and comment
COMPASS POINT (Isaac Boltansky)
- Mueller appointment temporarily tempers recent political tsunami, though also generates longer-term uncertainty for White House as length, consequence of the investigation are unknown
- Sees continued political volatility with Rosenstein’s scheduled Senate briefing, expected release of White House’s FY2018 budget proposal next week, CBO’s expected score of AHCA next week, May 24 deadline for FBI response to House Government & Oversight Committee’s document request, hearing on border adjustment highlighting policy chasm within the GOP, possible hearing with former FBI Director James Comey
- Also watching Treasury Secretary Steven Mnuchin at 10am Senate Banking Committee hearing; expects topics to include China’s currency, mortgage finance reform, with Sen. Elizabeth Warren pushing for new Glass-Steagall; also monitoring 10am tax reform hearing
- Believes GOP’s entire legislative agenda is at risk given persistent headline uncertainty, early signs of disharmony in Republican caucus, weakening White House
COWEN (Chris Krueger)
- Mueller’s appointment should “deflate pressure from partisan balloon”; Cowen hard pressed to think of a better neutral candidate; appointment will prolong the issue and policy overhang, but removes immediate Democratic cause celebre
- Notes impeachment is getting more media coverage than health care, tax reform, with Washington seeming intent on limping through 2017 one breaking-news alert per hour, with “the Deep State playing a long game of death by a thousand cuts … that Trump squeezes lemon juice into with each tweet and comment”
- At best, it’s massive distraction; at worst, constitutional crisis; pointless to predict as precedence is out the window; next key catalyst is nomination to replace Comey as FBI Director, which may come in next 48 hours; watching for eventual Comey Capitol Hill testimony; if he uses terms like “obstruction of justice” under oath, may mean distraction moves to crisis
HEIGHT SECURITIES (Peter Cohn)
- Mueller appointment represents significant move forward in investigation’s structure, should clear up claims of interference by the executive branch
- While not an official move towards impeachment proceedings, it’s step in that direction if Mueller finds any criminal wrongdoing; investigation may take a year or longer — in the meantime, impeachment is very unlikely without conclusion by Mueller
- Keeps 15% odds various investigations, media attention will erode support to extent it leads to the President’s impeachment, resignation, or some other method of removal (such as 25th Amendment)
BEACON POLICY ADVISORS
- White House turmoil marginally related to prospects for 2 pillars of Republican legislative agenda, tax and healthcare reform; may in fact help, as may mean less Trump administration interference with efforts to forge compromises; whether healthcare reform passes by Aug. recess will be more determined by Sen. Majority Leader Mitch McConnell than by Trump, and it’s ill-advised to bet against McConnell
- Sees Trump issues as Clintonian, not Nixonian; sees Mueller appointment as playing stabilizing role by instituting formal, objective process to address allegations
- Investors may be ascribing greater political risk to president’s survivability than is actually the case at this time; as long as House remains under GOP control, doesn’t see impeachment as politically realistic outcome
BMO (Ian Lyngen)
- Mueller appointment may be another step in problems for Trump, rather than solution that would calm things
- Notes Treasuries extended Wednesday’s rally overnight following Reuters headlines citing sources claiming Trump campaign had at least 18 undisclosed contacts with Russian officials between April and November 2016; though always reluctant to assign great deal of weight to leaks/mysterious sources, concedes in current political episode, such information has become rule rather than exception; price action confirms relevance of news-flow, with focus on political saga
- Doesn’t see Trump going anywhere soon, despite calls for impeachment; most market-relevant development may be that whatever hope there might have been Congress/administration would find common ground on pro-business series of reforms has now largely (or entirely) been eliminated
MILLER TABAK (Matt Maley)
- Sees stock market as having been over-bought, ripe for pull- back; odds are high this pull-back will be more than “a one-day- wonder”
- Believes too many people are talking about both extremes (new political development is another Watergate vs absolutely nothing); thinks it’s something in the middle.
- Doesn’t see Trump resigning tomorrow, while process country would have to go through to get rid of him will be “SO ugly” it will cause a lot of harm