The 2024 presidential race in the US kicked off in earnest this week, with Donald Trump trouncing his rivals in the Iowa primary. Iowa may be small and only one of 50 states in the US, but Trump’s margin of victory suggests he is still the favourite to be the Republican Party’s presidential candidate. Given Joe Biden’s weak polling, it’s quite likely that Trump could win a second term in the White House.
As such, everyone from political leaders in Europe to captains of industry are starting to contemplate what a second Trump presidency might mean for the world. Such is the level of anxiety and uncertainty that the US presidential race brings to mind a tight contest in an unstable emerging market, rather than an election in the world’s richest and most powerful democracy.
For investors and business leaders, the question is whether a Trump or Biden president would be more business friendly. Trump’s volatile nature, his willingness to use state power to punish political enemies and his disregard of constitutional standards will colour the upcoming months with uncertainty—which may well unsettle markets in the run-up to the elections.
The plus side of a Trump presidency for businesses (and their stock prices) is that he instinctively leans towards low taxes and less cumbersome regulation. This is a stark contrast to Biden, who has shown considerable enthusiasm for antitrust actions and higher corporate tax rates since taking up residency in the White House.
Continuity versus disruption
Yet, Biden has shown himself to be a safe pair of hands since the pandemic. He has presided over an economy that has grown and a booming job market over the past two years—even in an environment of decades-high interest rates and inflation. Biden represents continuity and predictability, which many business leaders might prefer over the chaos of another Trump term.
The big concern is that Trump may be unconstrained by the government and party machinery that kept him in check in his first term. This time around, Trump has surrounded himself with true believers and has a firmer grasp on how to push through his most radical policies. It remains to be seen if Congress and the courts could curtail his most dangerous impulses.
A Trump comeback could potentially mean a disruption of US domestic politics and of the international order. While lower taxes and less regulation might be superficially better for corporate earnings, the price companies might have to pay for them could be too high. For example, US exporters will suffer if Trump triggers a trade war by unilaterally hiking tariffs on imports.
Globalisation under threat
In a worst-case scenario, such actions could reverse many of the gains of globalisation, not just for the US, but also for its trading partners in Europe, China, and the rest of the world. With the US heavily dependent on migrant labour, Trump’s anti-immigration stance could also be bad for businesses in every sector from agriculture to technology.
Whether it’s Biden or Trump in the Oval Office, neither has yet advanced credible plans to address the US’s swelling deficit. But this is not likely to be the source of a crisis for the US in the shorter term—it’s a can that successive presidents have managed to kick down the road for many years. It will take more than Trump to shake confidence in the dollar or US treasuries.
We have written in earlier newsletters that the personalities and ideologies of US presidential candidates matter less than macroeconomics, which is not often the case in emerging markets where elected leaders tend to have a significant impact on their economies and financial markets. This will probably be the case in 2024, too. But given Trump’s complete dominance of the Republican Party, his disregard for political norms, and the level of political polarisation, there’s a chance that traditional checks and balances may fail. That many business leaders are asking these questions reflects concerns of how a second Trump presidency could break with tradition and introduce an emerging market characteristic, where political leadership could play a more influential role in the macroeconomic landscape.
“A stable democracy is in the interest of business. When you see political retribution and when you see a lack of faith in elections, it’s really dangerous for business.”
– Daniella Ballou-Aares, CEO and co-founder of the Leadership Now Project
“Like Caesar, Trump wields a clout that transcends the laws and institutions of government, based on the unswerving personal loyalty of his army of followers.”
– Robert Kagan, American neoconservative scholar
Global News
- Countries around the world are delicately — but urgently — preparing for Donald Trump’s possible return to the White House, with many seeking to find out his trade policy and others stating his return as US president would be a threat. Although CEOs won’t say it out loud, they fear that a second Trump term could be worse than the first and they worry about his MAGA (Make America Great Again) supporters and their adverse effect on sales, as well as a total cut of trade ties with China.
- An increasing number of insurers will not cover American, British, and Israeli vessels against war risks in the key commercial shipping corridor through the Red Sea as attacks from Houthi rebels continue. US officials have warned American merchant ships to steer clear of the vital waterway until further notice. The crisis in the Red Sea threatens to damage economies by increasing prices for consumers and delayed shipments of goods.
- The dollar had its biggest rally in 10 months as traders questioned the scale of Federal Reserve rate cuts priced into markets and geopolitical tensions boosted demand for the safe haven currency. The Bloomberg Dollar Spot Index rose 0.8% on Tuesday, its strongest advance since last March.
- In Europe, the European Central Bank is likely to cut interest rates in the summer, according to President Christine Lagarde. This does, however, depend on what the data indicates, and the bank is still concerned about the upside risk to wages.
- The UK’s inflation rate rose slightly in December, picking up for the first time in almost a year, after a change in tobacco taxes pushed up prices. Consumer prices rose 4% in December from a year earlier, and up from 3.9% the previous month. Despite the unexpected uptick, inflation is still near its slowest pace in two years and well below where the nation’s central bank thought it would end last year.
- China’s economy grew at one of its slowest rates in more than three decades last year, at 5.2%, as it was battered by a crippling property crisis, sluggish consumption, and global turmoil. This growth rate was in line with expectations.
- Microsoft is making its AI assistant Copilot available to consumers and the corporate version available to smaller companies as it tries to increase the number of paying customers for the new services. The consumer version will cost $20/month.
- Meanwhile, Nvidia and AMD shares jumped on Tuesday as investor optimism over the prospects of higher demand for AI-powered chips prompted Wall Street analysts to hike their price targets for the semiconductor giants. Nvidia is in the lead when it comes to the chips, although AMD is gaining ground.
- Rental firm Hertz Global Holdings is moving away from EVs to petrol cars, selling about 20,000 electric vehicles, including Teslas, in another sign that EV demand has cooled. This move is because of citing higher expenses related to collision and damage for EVs even though it had aimed to convert 25% of its fleet to electric by the end of this year.
- As at Thursday’s close the S&P 500 was flat for the week.
Local News
- The JSE has lost 22% in US dollar terms since President Cyril Ramaphosa took office in February 2018, while the S&P 500 gained 75% during the same time. The bourse stabilised somewhat on Thursday after almost unrelenting selling since the start of the new year pushed the ALSI 6.8% down, to a two-month low.
- Factors affecting the rand due to investors moving away from riskier assets include: Heightened international tensions, which supported the US currency, seen as a safe haven; a missile strike on a US-owned ship in the Arabian Gulf; Trump’s overwhelming win in the Republican Iowa caucus; hawkish comments from the World Economic Forum in Davos that have seen markets trim some bets on the timing and pace of central bank rate cuts; and the prospect of a renewed trade war with China.
- The rand is likely to fluctuate between R18.50 and R20.50 to the dollar and possibly even worse if South Africa’s structural issues deteriorate further according to Citadel’s chief economist, Maarten Ackerman. On Tuesday, the rand weakened through R19/$ for the first time in more than two months.
- President Cyril Ramaphosa used the ANC’s January 8 statement to urge voters to reward South Africa’s ruling party for steps it took decades ago to improve living conditions and trust it to fix problems created under its rule. The president sought to play up its glory days, while minimising references to its performance during his term in office. He claimed South African’s lives had improved since the first democratic elections in 1994. Over a 30-year horizon, he’s correct. Over the past 15 years, he is not.
- According to Tom Eaton, in a BusinessLIVE column, the young lions of the ruling party are “the final, desperately disappointing iteration of a famous line”. Despite the ANC’s woes, Ramaphosa, speaking at its 112th birthday event, said the party was here to stay. Eaton has a different take: “I hope when that end comes it is peaceful and painless. I hope when it happens the party gets the obituaries it deserves. But above all, I hope it comes soon.”
- Old-time opposition politician Khume Ramulifho has become the latest black leader to resign from the DA, and as a member of the Gauteng provincial legislature. He has joined political start-up Rise Mzansi as South Africans prepare to go to the polls. Others who have left the DA in recent years include: Former DA MP, Patricia Kopane; Former DA policy chief, Gwen Ngwenya; Former Joburg mayor, Herman Mashaba; Former KwaZulu-Natal MPL, Mbali Ntuli; Former MP, Phumzile van Damme; Former party leaders, Mmusi Maimane and Lindiwe Mazibuko; Former Gauteng leader, John Moodey; Former Midvaal mayor, Bongani Baloyi; Former Cape Town mayor, Patricia de Lille; Former Nelson Mandela Bay mayor, Athol Trollip.
- The country is becoming increasingly fragile as it loses key social cohesion functions, risking increased violence, dissatisfaction, and social unrest, according to Wits governance expert Professor Alex van den Heever. His comments come as the World Economic Forum identified state fragility as one of the top five risks to South Africa in 2024.
- Finance minister Enoch Godongwana has warned that next month’s budget will be a “difficult one” as the nation’s ability to service its growing debt remains a challenge. He is set to announce more details on the National Treasury’s plans to arrest ballooning debt. The Budget will likely be delivered on 21 February.
- Central Bank Governor Lesetja Kganyago has said that interest rates won’t be cut while inflation remains persistent, despite it being in the target range. The Bank would like to see inflation at 4.5%. A decision on rates will be made next week, just as fuel prices are set to rise.
- Transnet’s coal export line to Richards Bay has been closed and export activity largely suspended because two trains collided at the weekend in a major blow to efforts by the government and organised business to reform Transnet’s crumbling logistics operations. Because of Transnet’s failings, Maputo’s port has grown into a regional economic driver.
- According to the Post Office’s business rescue plan, as many as 6,000 SA Post Office workers — more than half the current workforce — stand to lose their jobs by the end of March. The Communication Workers Union is fighting to reduce the proposed number of retrenchments.
- MultiChoice Group is open to US media giant Comcast, which owns Sky in the UK, acquiring a larger stake in its video streaming platform, Showmax. Last year, Comcast bought a 30% stake in Showmax for an undisclosed sum. MultiChoice is set to launch Showmax 2.0 – a revamped version of its streaming service – on 12 February 2024.
- At the time of writing the rand was 2.10% weaker and the ALSI was 2.1% lower for the week.
Sources: Dynasty, TechCentral, Business Insider, AFP, News24, Daily Maverick, TechCentral, Bloomberg, BusinessLIVE, The Economist, NYT, CNN, Reuters, etc.
