US: Stronger impetus to come from political developments - BBH

Analysts at BBH suggest that the US economic data may pose headline risks, but the stronger impetus will come from political developments in the week ahead.  

Key Quotes

“Investors got a taste for what could be in store at the end of last week as the two main political issues--the Russian investigation and tax reform--erupted at the same time.”  

“That Flynn admitted to lying to the FBI about contact with Russia during the transition period is puzzling.  It was not illegal, so why the deception?  That Flynn plead guilty to a minor crime compared with other charges that could have been made, seems to suggest Flynn not only will cooperate with the investigation but can provide significant information.”

“Flynn is the fourth person indicted by the Special Investigator, Mueller.  The risk is that what appear to be distraction tactics themselves disrupt the news stream, like seen last week.  There may be some speculation that President Trump may think again about firing Mueller, but this is not the most likely scenario.  Given the number of people indicted, firing Mueller would strength argument that the President was obstructing justice.”  

“It is a powerful charge, and obstructing justice was the first charge in the draft of the articles of impeachment against Nixon.  Although some of the event markets show that the "betting" that Trump will be impeached has increased, we think it is far premature to take seriously.”  

“The Senate version of the tax reform was fluid until the very end, and it finally passed early Saturday morning.  The next step, which will begin in the coming days is to reconcile the House and Senate versions.  There are several significant differences.  There are some issues where the differences cannot be split.  The last-minute gymnastics that were needed to balance the contradictory interests speaks to the delicate balance struck, which is put into jeopardy during the reconciliation process.  Over the weekend, President Trump seemed to have suggested willingness to compromise on the corporate tax cut.”  

“One may be forgiven for thinking that because Republicans will control the reconciliation process that an agreement will be easy.  The main reason behind the inaction by the legislative branch has been difficulty in reconciling competing interests within the Republican Party.  After the reconciliation committee hammers out whole cloth from the remnants, both the House and Senate will vote on the bill again before it goes to the President.  The declared goal is to have this done before Christmas.”