SPQR and what data says about hospitality crisis; Markets make sense of Trump shooting
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Does shock of Trump shooting change economic outlook?
The attempt to assassinate former President Donald Trump was shocking. It was a blow for those hoping US political tensions might ease anytime soon. But for those feeling rattled and unnerved by the seeming chaos of US politics, financial markets might offer an antidote.
The first thing to say is that – as is often the case – investors have taken it in their stride with no especially dramatic moves in either direction.
What we have seen since the weekend is a rise in the US dollar, a rise in Wall Street markets, a rise in Bitcoin, a fall in oil prices and growing expectations of two rate cuts this year by the US Federal Reserve.
Broadly speaking, these are all good things.
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None of the movements were unusual, though, and given we had upbeat comments from US Fed chairman Jerome Powell, they can’t really be directly attributed to anything political.
Before the weekend, markets were already pricing in the likelihood of a Trump victory in November. Those odds have risen further.
Conventional wisdom is that markets like certainty and prefer Republican presidents (which usually mean lower taxes and less regulation). So perhaps it’s not surprising the tone has been upbeat in the past few days.
But of course, Trump is far from conventional.
The market response paints a very different picture from the commentary we are seeing about America.
The tone of many headlines and opinion pieces – and most of the social media noise – is highly dramatic.
We are reading warnings about social conflict, the death of democracy, and a country on the brink of civil war.
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The disconnect is jarring. One can only assume the reality is somewhere between the two extremes.
When we look at broader economic policy that Trump might bring in, it is his trade policy that is of most concern for this country.
A Trump presidency would probably mean more tariffs and another step away from the globalised free-trade world that suited New Zealand’s open export economy quite nicely.
But there may be some mitigating factors there too. One is that much of the damage to world trade has already been done.
Trump ushered in a new era of protectionism in his first term. It is something the Biden administration has not rolled back. In fact, Biden is about to introduce new trade barriers including 100% tariffs on Chinese electric vehicles.
Trump might go further still. The Economist Intelligence Unit (EIU) released a Trump Risk Index last week looking at trade fallout for the world.
“We think that Mr Trump would follow through on his stated intention to impose a blanket tariff on US imports; he has proposed a 10% flat rate, although we believe that this would ultimately be watered down,” it warned. “Additional punitive measures on politically sensitive imports like steel would be likely.”
The good news is that the EIU rated New Zealand as one of the nations with the lowest level of exposure to this risk – largely because we are so exposed to China’s economic fortunes.
That’s an issue in itself of course (see below for more on that).
Culturally, of course, New Zealanders still have a lot vested in the American drama.
For my money, Trump does look almost certain to win at this point. But “at this point” is an important part of that sentence. The events of the past few weeks should serve as a reminder that the American political news cycle is now spinning at a remarkably frenetic pace. November still looks a long way off. A lot can happen and it probably will.
Meanwhile, the steady march of progress towards lower interest rates offers a calming distraction.
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