President Trump has been impeached. However, markets are paying very little attention. US politics has become hugely partisan during the time of an incredibly divisive President. The Democrat-controlled House has been perusing this impeachment process, but it is little more than political theatre. A simple majority in the House of Representatives was needed to “impeach” President Trump. However, the process needs to be “convicted” in the Senate by two thirds majority. The Republicans enjoy a 53-47 majority and thus means a highly unlikely 19 Republicans would need to vote against their President to convict the impeachment. The chances are extremely slim. So the political risk is being all but brushed off (although this could impact on Trump’s electoral chances of a second term). Risk appetite remains relatively high and this is reflected in the underperformance of safe havens. VIX Volatility remains around multi-month lows, whilst Treasury yields moved higher (with a yield curve steepener). Equities and forex majors have become are a little cautious, but, this is more a function of a lack of conviction surrounding the true implications and components of the “phase one” US/China trade agreement. The Dollar/Yuan rate hovering almost bang on 7.00 in recent days reflects this. The Bank of Japan did very little to change the narrative in its latest monetary policy decision.
Wall Street closed a very subdued session around the flat line yesterday, with the S&P 500 -1 tick at 3191. With US futures again all but flat today, Asian markets have struggled for direction (Nikkei -0.3% and Shanghai Composite flat). European markets continue this theme with FTSE futures and DAX futures all but flat. In forex, there is a slight improvement in risk which has allowed EUR and perhaps more interestingly, GBP to find support. The big mover of the early part of the session is outperformance from AUD which is higher on better than expected employment data. In commodities, we see the continued consolidation on gold whilst oil is also consolidating its recent run higher.
There is a UK focus on the economic calendar early today. At 0930GMT UK Retail Sales (ex-fuel) are expected to grow by +0.3% for the month of November (after falling by -0.3% in October) which would mean that the year on year growth drops back to +1.9% (from +2.7% in October). The Bank of England monetary policy is at 1200GMT with the MPC not expected to move the interest rate at +0.75%, but of more interest will be on how many members vote for a cut. In November there were 7 votes to hold and 2 votes to cut. This is expected to be the same again in December. On to the US data, US Current Account is at 1330GMT and is expected to see the deficit improve slightly to -$122.1bn in Q3 (from $-128.2bn in Q2). Weekly Jobless Claims are at 1330GMT and are expected to moderate slightly to 225,000 (from the spike to 252,000 last week). The Philly Fed Business index at 1330GMT is expected to slip slightly to +8.0 (from +10.4 in November). Existing Home Sales at 1500GMT are expected to drop by -0.2% to 5.44m in November (from 5.46m in October).
Chart of the Day – USD/CAD
The Canadian dollar has consistently repelled US dollar strength throughout 2019 and once more is finding positive traction towards the end of