US: It’s all about politics – BBH

The research team at BBH suggests that in the US political developments are expected to take centre stage for the week.

Key Quotes

“First, there are press reports claiming to have identified President Trump's first two appointments to the Federal Reserve's Board of Governors.  Rather than commenting on the candidates themselves, we share a caveat.  Investors may want to look past some partisan claims.  There are few dissents from Governors in recent years.  It is difficult to tell based on voting records which Governors were appointed by a Republican President and which by Democrat Presidents.”

“As it turns out, Governor Powell is currently the only Republican appointee.  His voting record and demeanor suggest great continuity if the speculation is true that he replaces Yellen as Chair early next year.  That said, Volcker, Greenspan, and Bernanke were each appointed by the President from one party and reappointed by the President of the other party.”

“The second important US political development is the testimony of former FBI Director Comey before the Senate Intelligence Committee investigating the alleged involvement of Russia in last year's election.  It is important for investors because the more protracted the imbroglio, the more investors may question the Administration's ability to legislate its economic program that had included corporate tax cuts, and tax reform, deregulation and a large infrastructure initiative. Ironically, a distracting political crisis would likely be bullish US bonds, on slower growth and inflation, and less demand for capital.  That decline in interest rates may weaken the dollar while lending support to equity prices.”