Attack on Trump: secondary effects on the markets?
15 JUL, 2024
AUTHOR: Gregor Hirt, Global CIO Multi Asset at Allianz Global Investors
Following the weekend events in Pennsylvania, the safe haven status of the US dollar could be questioned.
Former President Donald Trump was the target of an assassination attempt on Saturday during a rally in Pennsylvania, just days before the Republican National Convention to be held in Milwaukee this week.
On Sunday, President Biden telephoned Mr. Trump and issued a public statement condemning any form of political violence, stating that "there is no place in America for this type of violence".
How markets usually react to such events
We believe that the main implication of the attack on the markets will be to bring the American elections to the attention of international investors. Recently, markets have been more concerned about the political situation in France. Considering the recent weakness of US economic data and the confirmation that inflation is falling again, such an event could support a further drop in US yields.
Furthermore, investors will want to observe the reaction of the US dollar, which often weakens in the face of internal problems: its usual function as a global safe haven does not work well when political problems are domestic. For example, it lost value after the assault on the US Capitol on January 6, 2021.
Investors often turn instead to safe havens not exposed to the United States such as the Swiss franc and gold. During recent unrest stemming from the EU elections and the French political situation, the dollar barely reacted, especially compared to the Swiss franc. This is unusual and, considering the high value of the dollar, could be the catalyst for a stabilization – if not a phase of weakness – of the dollar.
What could happen next
We believe that the markets will take the news calmly. In line with previous events of this kind, any initial volatility - the breadth and duration of which depend on the severity of the event - should be quickly followed by a return to stability.
As many commentators have pointed out, the attack could strengthen Trump's campaign. His resilience in the face of an assassination attempt compares favorably with Mr. Biden's faltering performance in a recent televised debate. The markets could respond positively to the increased likelihood of a second Trump presidency, especially considering how close the race seemed. Bitcoin was an early beneficiary Monday morning.
