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A nervous week shows America’s strengths, too

A month ago, Donald Trump had the confidence of a currency trader on a hot streak. “I think our dollar is too strong, and partially that is my fault because people have confidence in me,” he said. Whether he still considers himself a key factor in movements of the US currency is unknown. The dollar index has surrendered all of the 5 per cent it accumulated between the election and January. It shed 1 per cent just this week.

The dollar’s dip makes a certain amount of sense. Mr Trump had as bad a week as a president can, short of losing his job. After the firing of the Federal Bureau of Investigation director, who was investigating the connection between his campaign and Russia, a memo written by that director surfaced, describing what might be an attempt by the president to scuttle that investigation; a leak revealed that the president has shared sensitive intelligence, apparently impulsively, with Russian diplomats; finally, a special counsel was appointed to take control of the Russia probe. Throughout it all, the president and his aides gave divergent accounts of what was happening and why, feeding speculation that a staff shake-up was on the way.

The administration’s lack of skill in the politics of legislating has already driven down the odds that the crucial elements of the Trump agenda would pass. Mr Trump’s bad week has made substantial tax reform look like a stretch, and turned a trillion-dollar stimulus bill into a receding mirage.

A market that had absorbed the farcical and tragic elements of this presidency with aplomb finally gave a little flinch this week. On Wednesday, as events in Washington became febrile, the S&P 500 index lost almost 2 per cent of its value, its worst day in months. Treasury yields fell sharply on Wednesday and Thursday.

The flinch was very small by any rational measure. Only by the preternaturally calm standard of recent weeks were the moves particularly big. The market was already rebounding on Thursday. The closest recent comparison — despite a difference in valence — is March 1, the day after the president’s surprisingly measured speech to Congress. The market rose more than 1 per cent. That day is little remembered now.

The most remarkable feature of the market continues to be its resilience. As the notion of a “Trump trade” pinned on lower taxes and stimulus has wilted, investors have moved on almost seamlessly to a recovery trade, tied to strengthening global economic fundamentals and very strong corporate earnings.

What happened in Brazil’s markets this week makes an illuminating contrast. That country’s unpopular president, Michel Temer, was the subject of a newspaper report that alleged he had paid bribes for another politician’s silence about corruption charges. The country’s stock market, which had been up 10 per cent for the year, gave up all those gains overnight, as the real fell 7 per cent against the dollar. That is a proper shock.

The strength of US markets has many sources: excellent companies, deep liquidity, a flexible underlying economy. Its immunity to date to the state of US politics may also reflect something non-economic, something that Brazil lacks. Most people at home and abroad may simply have a deep confidence that its institutions can survive a presidency characterised by incompetence, belligerence and the shadow of corruption. Something may yet sink American markets, which are at perilous highs. That politics have not done it yet is a testament to the country’s great underlying strengths.