US: Politics at the forefront - BBH

Analysts at BBH explain that although a key controversial adviser to President Trump was dismissed last week, the opportunity to re-start may be closing. 

Key Quotes

“Last night, Trump made two unsettling remarks.  First, he suggested that he may be willing to accept a shut down of the government if that is what is necessary to get Congress to authorize funding for the controversial wall on the border with Mexico.  The spending authorization is needed by the end of September as the US begins a new fiscal year.  Government shutdowns are not unprecedented in the US, of course, and they typically are mildly disruptive.  They are not good for the investment climate.”   

“Congress may seek to link the spending authorization bills with the debt ceiling.  The failure to renew the spending authorization leads to a government shutdown, but failure to lift the debt ceiling impairs the ability to service the debt.  While political maneuvering can lead to a shutdown, missing a debt payment is considerably more serious and one that in this game of brinkmanship largely within the Republican Party neither side seems to want to risk.”

“Secondly, Trump also threatened that he may still bring the US out of NAFTA.  The re-opening of negotiations just began last week.  There were much optimism and favorable spin in most of the media.  Although reports suggest that, contrary to the normal course where easy issues are resolved first, controversial issues were discussed.  Yes, they were discussed, but it seemed to turn into a simple restatement of each main issues.   Domestic content and the conflict resolution mechanism seems to be on what the negotiations will ultimately turn.    Between the new efforts to get funding for the wall and the threat to pull out of NAFTA, it is little wonder that the Mexican peso is the weakest of the emerging market currencies today (-0.7%) and rivaling the New Zealand dollar (-0.8%) as the weakest currency in the world today.”