Investment Grade Credit Insights: Markets Hold Firm Despite Political Uncertainty

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June 2017 IG Credit Insights

David Morse, CFA

David Morse, CFA - Managing Director of Global Credit Strategies & Head of Credit Research

Markets, for the most part, appear to be desensitized from the number of political events and decisions lingering just over the horizon. Despite the increased uncertainty, VIX dipped to record lows during the month. Oil proved to be the one exception with some volatility stemming from supply concerns.

Macroeconomic Backdrop for Credit:

Once again, political uncertainty seemed to dominate the headlines in May. First in the US, President Trump set off a firestorm when he abruptly dismissed FBI Director James Comey. The inconsistent responses out of the White House regarding the rationale for the firing not only highlighted the disorganization within the administration, but more importantly also raised questions as to whether this was a deliberate attempt by President Trump to disrupt Comey’s investigation into potential links between his administration and Russian officials. As additional details emerged, certain members of Congress were calling for the impeachment of President Trump on the grounds of obstruction of justice. Not only would this be extremely rare, but also in our opinion, very unlikely. In fact, throughout history no US President has ever been removed from office and only three have been close to being impeached. Richard Nixon resigned from office in 1974 before his impeachment vote and both Andrew Johnson (1868) and Bill Clinton (1999) were impeached by the House of Representatives, but were later acquitted by the Senate and therefore remained in office. That being said, the probability of impeachment would certainly increase if the investigation by former FBI Director Robert Mueller uncovered substantial evidence implicating President Trump or if the Republicans lose the House majority during the November 2018 mid-term elections.

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