U.S. President Donald Trump is unlikely to be impeached anytime soon, but the current political turmoil will derail his pro-growth agenda, Nomura said in a research note Wednesday.
President Trump has been embroiled in a series of scandals that have made investors concerned. On Wednesday, the Dow Jones industrial average lost 370 points recording its worst day since September last year, following news that Trump asked former FBI director James Comey to "let go" an investigation into former National Security Advisor Michael Flynn.
The events have led some to start weighing the possibility of an impeachment, but according to Nomura this "still seems a distant prospect".
"This issue is unlikely to be resolved anytime soon, but impeachment risk seems low," the bank said, noting that for former President Bill Clinton, the impeachment trial took three months plus investigation time.
"Removing Mr Trump will require a two-thirds majority in the Senate, and the chances of Republicans voting to impeach their own president seem low," Nomura added.
At least for as long as his approval ratings don't drop significantly, Republicans will have difficulties in turning against their president. Plus, President Trump can blame the media and intelligence agencies for impeachment charges, which boosts his anti-establishment status, the bank also said.
More importantly is what Trump's situation means for markets. Investors have grown wary of Trump's position and have begun searching for safe havens, such as gold and the yen, as they doubt that Trump will have enough support to pursue his wide pro-growth agenda.
"Increasing doubts over President Trump's ability to proceed with his economic policies will likely hurt USD momentum for the time being, even though expectations for bold US economic policy had already declined before this," Nomura noted.
The bank added that hard economic data have not yet given clear evidence of a strong U.S. economy and soft data have decreased slightly. This should make the euro stronger against the dollar, Nomura said.
In bond markets, "this should lead investors to gravitate even more into yield trades such as in IG (investment grade) credit and long UST (U.S. Treasurys) duration," the bank said.
Nicholas Brooks, head of economic and investment research at Intermediate Capital Group, said in an email: "The most recent events are being taken far more seriously by investors, with recent market movements indicating investors are looking at the latest scandal as potentially representing a death knell for Trump's fiscal agenda.
"Those investors that have not already capitulated on so-called Trump trades will likely be liquidating those positions sharply. A prolonged wider risk asset sell-off seems unlikely, however, as long as the macro and earnings data continues to hold up."
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