Has Trump killed the Trump trade?

Citi says it’s all a storm in teacup:

 A report from the New York Times citing a memo alleging that President Trump asked former FBI Director Comey to end an investigation into Russian links has roiled markets. Concerns about Congressional reviews, potential special prosecutors and a deeper inquiry into the allegations could paralyze the White House’s agenda for the time being, especially given already present anxiety about the possibility that classified information was given to the Russians by Mr. Trump.

 Equity markets were hovering about 1% from Citi’s year-end target prior to today’s selloff driven by earnings improvement, and the better year-over-year EPS trend should remain intact given lead indicators. While some have argued that the so-called Trump rally has been about hope that the new Administration’s more pro-business focus will translate into faster economic growth, the profits issue has been more crucial. Nonetheless, fears that the emphasis on tax cuts and regulatory relief could be stalled by the new political drama that may be unfolding.

 Business optimism still is high but these animal spirits could bog down if DC is distracted by partisanship and constant bickering. Trump has begun the process of addressing regulation via executive orders and that has been noticed in small business survey work, but a more robust effort is needed to take promises into action and thus investors are not wrong to worry about the possible fallout from the new allegations. Business activity and lead indicators are supportive of continued good news on the economic front but politics could generate some speed bumps.

 The consistent skepticism in the stock market’s rally is possibly one of its most intriguing elements. While Washington is in the spotlight today, the Fed was the source of angst a few weeks back and a decline in the Citi Economic Surprise Index accounted for the “agita” before that. The reasons for discomfort have shifted from week to week and unless the notion of impeachment becomes much more probable, it is likely this new issue will pass and investors will revert to the earnings story.

 While Republicans may not want to get dragged into defending actions that make them uncomfortable, more concrete evidence will be needed to cause a graver crisis. Given Senate Majority Leader McConnell’s comment this past weekend about looking for less drama out of the White House, it appears that the GOP wants some distance from things that could hurt them in the midterm elections. But, it is also unlikely that they will gang up on a President who represents their party.

Maybe they’re right. I prefer Edward Luce at the FT:

America’s government is at a dangerous impasse. Most people know Mr Trump is unfit to be commander-in-chief. But nobody with the power to redress it has found the courage to act.

…Trumpians are stoked by a closed ecosystem of news sites that presents the world in a radically different light to the rest of the media. Thus Mr Trump did not fire James Comey last week. The director of the Federal Bureau of Investigation resigned, according to Fox News. Likewise, Mr Trump did not disclose vital intelligence to Russia’s foreign minister. Nor did he put pressure on Mr Comey to shut down the investigation into Michael Flynn, Mr Trump’s first national security adviser. These are fake stories.

…This poses a terrible dilemma for Republicans. Some are hoping to bide their time until midterm elections. Mr Trump’s approval ratings are so low that if the polls were held today Republicans would lose control of the House of Representatives, and possibly the Senate. At that point, Republicans would start to abandon Mr Trump’s ship. Democrats may well campaign on a promise to impeach Mr Trump. But that is almost 18 months away. Other Republicans are hoping to extract what they can before the Titanic starts to sink.

Most, such as Paul Ryan, the House Speaker, are prepared to suffer the indignity of working with Mr Trump if it gives them the chance to pass a big tax cut…It is a coherent position. But Mr Trump keeps making it harder for Mr Ryan to build the case for it. The chances are now at least as good that the firestorm around Mr Trump will engulf his economic agenda.