Comey speaks — What you need to know in markets on Thursday

Myles Udland
Markets Reporter

Thursday will be the week’s busiest day for news, with events in European and U.S. politics set to make headlines.

In the morning, U.S. investors will first contend with the latest monetary policy announcement from the European Central Bank, which is expected to keep its interest rate policy unchanged. Claus Vistesen, an economist at Pantheon Macroeconomics, wrote Wednesday that the ECB is unlikely to signal that rates will be reduced further or send signals about changes to its timing on raising interest rates in the future.

Then at 10:00 a.m. ET, U.S. markets will turn their focus to testimony from former FBI director James Comey. In a week with few market catalysts, this event has been eyed as a potential market mover.

Former FBI director James Comey.

Later on Thursday, results from the U.K.’s general election will roll in, with the latest polls showing that Theresa May’s Conservative Party appearing likely to gain additional seats in Parliament, according to the latest polls.

Comey, Comey, Comey

For the last year or so, U.S. markets have been uniquely focused on what happens in the political world.

The election of Donald Trump as president, for example, sent markets sharply lower and then sharply higher as investors at first feared the surprise result and then embraced potential pro-business initiatives. As we’ve chronicled, markets have given up on betting on a few of Trump’s key plans — tax reform and infrastructure spending — but the early days of an administration that has captivated the nation and the world has not been mere background noise for investors.

Which brings us to Thursday.

Former FBI director James Comey will testify on Thursday before the Senate Intelligence Committee. The release of his prepared remarks indicate that President Trump asked the then-director of the FBI if he would be loyal to the administration. Comey was fired on May 9.

Comey’s testimony has been called the “Super Bowl” for Washington, D.C.-types by some pundits. And with the current state of Washington grabbing a uniquely-large slice of the nation’s attention, investors will be watching closely, too.

What for, exactly? Well, as Mark Spellman of Alpine Funds told Yahoo Finance on Tuesday, it is the job of an investor to worry. So, investors will look for things to worry about.

After Comey’s dismissal, “Watergate” became the hot word in political circles. And while impeaching Trump is largely a fantasy harbored by those who supported Hillary Clinton in the election, Greg Valliere, chief global strategist at Horizon Investments, notes that many on the left will likely seize on what Comey says Thursday to allege obstruction of justice by Trump in his dealings with Comey and the FBI’s investigation into contact between former national security advisor Michael Flynn and Russian officials.

Valliere adds that Comey’s hearing will be “spectacular theater, with Donald Trump tweeting simultaneously,” but with the chances of any revelations leading to Trump’s removal from office effectively nil, markets still need to monitor the hearing and the fallout for signs that Trump’s economic agenda could be even further imperiled.

“Political capital is precious in Washington,” Valliere writes, “and if Trump’s job approval rating falls into the low-30s this summer, it will embolden Republicans to ignore his legislative agenda (many of these Republicans have re-elections to worry about).

“There are flickers of life in the Senate on health reform and in the House on tax reform, but many Republicans are sick of Trump already, and aren’t anxious to do him any favors.”

The political fallout from Thursday’s hearing, then, particularly on the right, will be important for investors. As we noted, tax reform and infrastructure expectations have been cut down considerably. The reflation trade has deflated. But a general confidence that things won’t go wrong in the Trump era is still aiding investors’ confidence while they bid up shares of tech giants like Apple (AAPL), and Amazon (AMZN), and Facebook (FB).

If this slips, then what happens Thursday will matter, even if only by association.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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