Although the U.S. Election is too close to call, financial markets have made their opinions clear, becoming increasingly nervous whenever Trump erodes Clinton’s lead.
Global banks turned cautious in June, and have stayed that way. The consensus crowd-sourced view moved the US Government down by one full credit notch. And unlike financial markets, that single, dramatic change in credit view has not been influenced by the vagaries of the polls.
Some Trump policies – if actually implemented – could strike at the heart of the global financial system. If Fed independence is compromised, a more hawkish stance on interest rates is likely. The slightest hint that the US Government is not willing to honour its debts would create widespread instability.
But markets do not seem to be taking those possibilities too seriously; they do, however, see Trump as a source of genuine uncertainty. Clinton is more of a known quantity: taxes for those who can, spending for those who can’t; good for growth, bad for Treasuries.
The campaign has exposed very deep divisions within the two main parties, and resolving these will take considerable time. And with the prospect of legal challenges to the result, or of Upper and Lower chambers in deadlock, the current uncertainty seems unlikely to disappear on November 9th.
Global banks seem to have taken the view that, whoever wins, and whatever the makeup of Congress, the credit standing of the US Government has already been diminished.