Shifting Our Odds on Impeachment, China Deal

Insights and Market Perspectives

Author: Greg Valliere

September 30, 2019

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SHIFTING OUR ODDS: It’s been a wild month in Washington, and as September comes to a close, we think odds of House impeachment are now above 50%, while odds of a China trade deal this year have slipped below 50%. We explain below.

IMPEACHMENT: Several factors persuade us that there will be 218 votes in the House, sufficient for impeachment, by late this year. This still looks like a major risk for Democrats, especially moderates who face tough election fights in 2020, but we cite three reasons why House impeachment is increasingly likely:

1. Polls that indicate an increase in support for impeaching President Trump. Make no mistake, the polls will be huge in this narrative.

2. The likelihood that the CIA “whistleblower” will be credible in his upcoming testimony, citing witnesses and providing documents.

3. Growing evidence of a cover-up, as the White House hides damaging documents and defies subpoenas. A cover-up doomed Richard Nixon after an amateurish break-in at the Watergate.

AS OF NOW, WE STILL DON’T THINK THERE ARE 67 VOTES TO CONVICT in the Senate. Perhaps four or five of the 53 GOP Senators might defect, but that obviously wouldn’t be enough to convict. We’re not even sure that wily Senate Majority Leader Mitch McConnell would allow a speedy trial, even if the House votes to impeach. But the prospect of a Senate conviction has risen from about 20 percent this summer to about 30 percent now.

WHAT COULD FORCE THE SENATE TO CONVICT? It’s still unlikely, but more revelations, especially regarding obstruction of justice and witness tampering, would make a difference. And there may be explosive disclosures regarding Trump’s still-secret meetings with Vladimir Putin and other leaders. Should the House vote to impeach, the biggest factor would be Trump himself; if he and Rudy Giuliani threaten witnesses, it could persuade a dozen Senators to say “enough is enough.”

SPECULATION ABOUT IMPEACHMENT will be so pervasive this fall that officials in Beijing may view this as a dramatic change in the outlook for a trade deal. They can read the polls, and surely they must be thinking about stonewalling until after next November’s presidential election, hoping for a better deal with anyone but Trump.

PROSPECTS FOR A TRADE DEAL SLIPPED last Friday after the astonishing Trump Administration leak that the U.S. might curb investments by American firms and pension funds in Chinese stocks. A threat that provocative surely will hang over talks that are scheduled to resume next week. The animosity between both sides is palpable, and this latest leak only increases the friction.

COMPLICATING THIS ISSUE is the growing likelihood that China will have to crush the insurrection in Hong Kong, which seemed to spin out of control over this past weekend. A brutal crackdown would decrease congressional support for a trade deal.

TO BE CLEAR, THE BASE CASE SCENARIO still is that impeachment dies in the Senate, and that a China trade deal gets finished by late winter. But the odds are shifting as these huge issues move into uncharted waters. This uncertainty will be a dominant wild card for the markets as the traditionally volatile month of October begins.