The cajoler-in-chief

President Trump's approval ratings after his first 100 days in office make for grim reading. As markets question the ability of the White House to get its own way, we've seen a significant retracement in the "Trump trade" in both equities and fixed income. The President needs to become the cajoler, not just the commander, in chief to revive hopes of a large fiscal stimulus.

 

Political capital is a fairly nebulous concept. The standard definition is that political capital is the ability of a politician to “get things done” due to their popularity and the strength of their electoral mandate.

 

After President Trump’s first 100 days in office it is striking how the most powerful man in the world is struggling to have things his own way. Due to the separation of powers, any US president is unable to change Federal taxes or Federal spending programmes without congressional support. Lacking control over the purse strings, the President is instead forced to rely on the limited influence of executive orders to tinker with (rather than transform) the role and scope of government.

A President's ability to get congressional approval depends on his talent in persuading, pressurising and bargaining

The President is therefore the cajoler, not just the commander, in chief. His ability to get congressional approval depends on his talent in persuading, pressurising and bargaining with 100 US Senators and 435 Congressmen/women. That is partly a story of transactional pork-barrel politics (i.e. “the art of the deal”), but it is also partly a story of political capital.

 

Put simply, a popular president advocating popular policies is more likely to get his own way than an unpopular president advocating unpopular policies.

 

That is where things start to get difficult for the administration. After 100 days in office, President Trump has much lower approval ratings than any elected President since opinion polling began after WWII (see chart below).

This is critically important for financial markets given the President’s radical economic agenda. Expectations of lower taxes, deregulation, and increased infrastructure spending helped drive up interest rates, inflation expectations, and the equity market immediately after the election.

 A President's approval rating can be critically important for financial markets

Elements of that agenda may still pass into law. Our working assumption since the start of the year has been that roughly 50% of the proposed stimulus will be enacted. Markets are increasingly coming around to that view as roughly 50% of the “Trump trade” has unwound. Domestically focused equities have underperformed and inflation expectations have dropped back.

From here, the success or failure of individual elements of the Trump agenda looks increasingly likely to be down to the popularity of such policies on a standalone basis. That implies, for example, that tax cuts are going to be much easier to pass into law than building a “big, beautiful wall”.

 

We may only be 100 days into President Trump’s term of office, but it is already just 18 months until the Congressional mid-term elections in November 2018. Those mid-terms will see 33 Senate seats and all 435 House seats up for election.

 

If President Trump starts not to be seen as an asset by those Republicans seeking re-election, his ability to push legislation through Congress will dwindle further. However you define “political capital”, it is a rapidly depreciating asset for the White House unless Trump’s approval ratings improve materially over the months ahead.

 
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