The global political outlook for the second half of 2024 has become ever-more complicated following the failed assassination attempt on Donald Trump on Saturday, the latest and most dramatic political shock in a highly consequential U.S. presidential election that is not remotely following the playbook.
Markets have decided that a Trump victory is now virtually inevitable. We are not yet convinced; as we highlighted in our Rapid Reaction note on Sunday. ( Trump Shooting Shock Spikes US Political Risk )
The US political risk temperature is too high and there are too many wild cards to assume linear trend lines
In short, although the attack on Trump will likely mobilise his base and boost turnout by his supporters, adding an estimated 1-3 points to his polling numbers, we are more cautious than the consensus view in markets of an inevitable Trump victory. It is still too early to assume the trend line has consolidated in any one direction.
The surge in popular support that followed Jair Bolsonaro's attack in Brazil that (currently being cited in investment reports by analysts with short memories) is not a pattern that has precedent in the all-too-frequent instances (sadly) of U.S. political violence. In the most recent example, the initial boost in public support following the failed assassination attempt on Ronald Reagan in 1981 evaporated in the weeks thereafter and returned to previous levels.
In the divisive and bitterly polarised climate of today's America, voters are highly unlikely to switch support to a candidate they already know and have disapproved of, in any direction. As is well-known, the U.S. election outcome will be decided by hundreds, or even tens of thousands in a handful of battleground states.
In the short-term, the most obvious impact will be on campaign and fundraising momentum. Democrats will be obliged to pause campaigning to regroup and review strategy.
The immediate pressure on Biden to step aside will temporarily abate, perhaps for long enough to allow him to stay in place until the Democratic National Convention in a month, but this is not a certainty.
Via PredictIt: Donald Trump's Odds of Winning Have Increased
Latest Polls : PredictIt
The advantage of White House incumbency is not a small one, but clearly the headwinds faced by Democrats have increased since Saturday, and were already faltering. A September Fed rate cut might help economic sentiment, but we are cautious about that too.
As FGF Co-Principal Martyn Brush observed on our 2H Outlook webinar, if the Fed expects a Trump victory and the inflationary policies that it will bring, it will be reluctant to cut, only to be forced to hike again. Market participants don't seem to have factored this tension into their calculus.
Donald Trump rushed off stage at Pennsylvania rally, CNN
Meanwhile, Donald Trump has confirmed that he will attend the Republican National Convention in Milwaukee, which starts today. US political party conventions are normally a formality. The 2024 conventions will be charged with much greater import. The narrative is already circulating amongst evangelical Christians that Trump's life being spared is a sign of divine intervention.
The RNC in Milwaukee will almost certainly see a boost in fervour amongst the faithful, and potentially calls for retribution, although no motive has emerged about the shooter, reportedly a registered Republican.
A highly-anticipated key signpost at the RNC will be the naming of Trump's running mate. Accordingly, the fact that Governor Nikki Haley is reportedly now joining the event after initially stating she would not attend has increased speculation that she may be on the shortlist, though I regard this as a long shot.
Nikki Haley and Donald Trump NBC News
Overall, the state of play in September and October will ultimately have a greater bearing on the election outcome, and an "October Surprise" could well overshadow the impact of the July surprise of the attack on former President Trump's life, as dramatic as this sounds. In politics, timing is everything, and memories and attention spans are short.
The collapse of Lehman Brothers in September 2007 took weeks before it filtered into the U.S. election discourse—a race which had been dominated by the Iraq war up until that point. In 2016, Hillary Clinton was 4 points ahead in September, until the combination of the release of the Comey report and a fainting incident at a 9/11 memorial service negatively impacted the polling trend, resulting in the surprise outcome of Trump's victory--an event which took markets by shock.
And then there is the aftermath of the November 5th election to consider. I remain deeply concerned about the prospect for a smooth transition of power and acceptance of the outcome if the race given the toxic state of play.
Arguably, even more than the winning candidate, the mere evidence that the machinery of American democracy is functioning effectively on November 5th may be the single most important outcome of this U.S. election. The world is holding its breath in anticipation.
"It's counter-intuitive to say that this isn't a game changer , but I don't think it is," said Tina Fordham of Fordham Global Foresight. "It's more data point in a consolidating strengthening trend for Trump."
She added that to truly change an election, shocks generally need to happen much later in the process; there's a reason why the phrase "October Surprise" is in the political lexicon.
"The shooting further complicates the election outlook for Democrats, already divided over Biden's future as a candidate."
"U.S. political violence is sadly a feature and not a bug. ... The question now is how a nation, in which a significant proportion of citizens believe civil war is increasingly likely, will respond."
"We don't expect there to be an initial reaction in financial markets. If anything, the near-term implication will be the acceleration of the consensus view in markets of a Trump victory." Tina Fordham
