Navigating Rates
Trump shooting: knock-on effects for markets?
Following the weekend’s events in Pennsylvania, the US dollar may see its safe haven status challenged.
Former President Donald Trump was the target of an assassination attempt on Saturday at a rally in Pennsylvania, a few days before the Republican National Convention takes place in Milwaukee this week.
President Biden contacted Mr Trump on Sunday by phone and made a public statement condemning any political violence, saying “there’s no place in America for this type of violence”.
How markets usually react to such events
We think the principal market implication of the attack will be to bring the US elections to the centre of attention of international investors. Markets have recently been more preoccupied by the political situation in France. Considering the recent weakness in US economic data – and confirmation that inflation is falling again – such an event could support a further retreat in US yields.
In addition, investors will want to watch the US dollar reaction as it often weakens in the face of domestic issues – its “usual” global safe haven function does not work well when the political trouble is at home. For example, it lost value following the storming of the US Capitol on 6 January 2021.
Investors often turn instead to non-US exposed safe havens such as the Swiss franc and gold. During the recent turmoil stemming from the EU and French elections, the dollar barely reacted – especially compared to the Swiss franc. This is unusual and, considering the dollar’s high valuation, could be the catalyst for a stabilisation – if not a weaker phase – for the dollar.
What could happen next
We think markets are likely to take the news in their stride. In common with earlier events of this kind, any initial volatility – the amplitude and duration of which depends on the criticality of the event – should be followed swiftly by a return to stability.
As many commentators have pointed out, the attack could strengthen Mr Trump’s campaign. His resilience in the face of an assassination attempt compares favourably with Mr Biden’s faltering performance in a recent TV debate. Markets may respond positively to the greater likelihood of a second Trump presidency, particularly given how tight the race had seemed to be. Bitcoin was an early beneficiary on Monday morning.
See our earlier research where we highlight what a Trump and respectively a Biden presidency would mean for various financial markets topics like monetary and fiscal policy.
