US: Flynn pleaded guilty on lying to the FBI - ANZ

In the US, Michael Flynn pleaded guilty on Friday night with lying to the FBI about his contacts with Russian diplomat Kislyak, points out the research team at ANZ.

Key Quotes

“Flynn himself is not important for markets, but the fact that he is now cooperating with the investigation and could implicate key people further up the chain is. In addition, media reported that he was prepared to tell investigators that Donald Trump directed him to make contact with the Russians during the presidential elections.”

“US equities had a volatile day on the waxing and waning fortunes of the Senate’s tax bill followed by the Flynn news. The latter saw the S&P500 fall as much as 1.5% before clawing back losses on positive tax bill headlines. Markets have generally shrugged off US political risks up until now, but that is perhaps getting a little harder to do. The moves on Friday encapsulated a market that is torn between optimism on tax, and uncertainty about an escalating Mueller investigation may mean.”

“President Trump will no doubt be highly irritated that the timing is overshadowing progress on tax reform. The Senate approved its bill (cutting corporate tax from 35% to 20%) by 51 to 49 votes, with only one Republican not falling into line. While this is Trump’s biggest legislative victory there are still a number of hurdles to be cleared. In particular, it must be successfully merged with the House of Representatives’ own tax bill.”