02 Feb 2018
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After a period of peace, US President Trump's hard-lined trade stance has reared it's head again which is spooking risk sentiment currently.
We have also just seen Trump play hard ball with S.Korea and Saudi Arabia
Has Trump miscalculated the implications of a govt shutdown?
Last but not least, Trump has come out with all guns blazing as the US continuing spending resolution expires today.
He said his administration is prepared for a US govt shutdown if it so happens, which we think is a very dangerous stance to adopt.
If history has taught us nothing, it should at the very least show the paralysis wrought by the shutdown in 2013, the negative impact it had on domestic sentiment (according to polls conducted in the aftermath, 81% of Americans disapproved, 86% felt it damaged America's image, 53% held the Republicans accountable), and the sharp (albeit short) drop in econ growth.
While growth ultimately rebounded from Q1 2014, that was with the safety net of Fed stimulus.
With the Fed already gradually removing the punch-bowl, the question is why take that risk when there's already been a slowing of US growth momentum from the start of 2017.
In the face of the evidence above, we think that Trump has miscalculated on this front and we see any govt shutdown (however brief) as a s/t negative.
Possible market impact?
Taken in context, we see a govt shutdown scenario stoking cross-winds in USTs.
With this, the corresponding implication would be further USD weakness. JH
IGM FX and Rates
By Marcus Dewsnap 09 Apr 2018
Welcome to our newsletter, The Context, from IFI Research, containing thought leadership articles spanning a host of asset classes.