Paul Ebeling’s DC Commentary: “Investors Ignoring Trump Impeachment ‘Noise'”


The US Dem House’s impeachment focus is not even a distraction to the financial market, as nothing will or can come of it, as in the world of geopolitics something big happened at the weekend.

Sunday, President Trump announced that Abu Bakr al-Baghdadi, the leader of the so-called Islamic State (IS) died after a US raid in Syria that was carried out by American Special Forces and was hereby the most significant counterterrorism raid since the killing of Osama bin Laden in 2011.

The event is of no impact on financial markets and investors.

President Trump’s impeachment process continues and for investors it’s important to keep in mind that ‘if’ President Trump’s approval ratings do not weaken further due to the ongoing impeachment process, because if that would be the case then that would be more than probably bad news for USD.

As it is today, investors can discard this whole impeachment farce as noise. President Trump will not ousted.

It could be helpful to take look back for a moment to the value .DXY, and for example President Trump’s 3-month average approval rating where we see that both reference data move, broad-based of course, in the same direction.

What is good for President Trump is good for the Buck.

Hans Parisis writes, “Besides all that we have and also in the context of the value of the US dollar we have now the Federal Reserve’s new program of Permanent Open Market Operations or POMOs that are one of the tools used by the Fed to implement monetary policy and influence the American economy.

POMOs are the outright purchases (or sales) of securities for the system open market account (SOMA), which is the Federal Reserve’s portfolio.”

Investors must keep in mind that the newly initiated POMO program of buying T-Bills is ‘not’ a new Quantitative Easing or QE program. What the Fed does is it injects bank reserves via T-Bill purchases and hereby grows its reserves in the process so that it will be able to wind down its Temporary Open Market Operations or TOMOs.

This, and other Key factors will continue to absorb liquidity, which means that the $60-B/month purchase pace should not be extrapolated to corresponding growth in bank reserves or excess liquidity.

All this is reflected in the better performance of USD that had weakened when the Fed announced the liquidity injections in its new program of Permanent Open Market Operations or POMOs.

Investors should not expect further surprising dollar weakness.

Finally, the market’s somewhat USD Bearishness has been pared some, in the light of latest BREXIT news.

In the EU-UK divorce process these are the Key developments to look at.

  • the European Union agrees an extension of the ‘exit date’ to 31 January 2020. This had been expected in the financial markets and it will not create a strong reaction, and
  • There is the possibility of a UK general election being called for 9 December

The opposition parties, the Liberal Democrats and the Scottish Nationalists have proposed a bill to allow this, which should be voted Tuesday.

The Labor Party, is opposed, but that is not enough to stop the process.

Markets are expecting an election and the idea here is that having an election with an EU-agreed delay in place would then allow a ‘new’ Parliament more time to work through the EU-withdrawal agreement.

Have a terrific week.