Trump fright for bonds: President risks having a Liz Truss moment, says ALEX BRUMMER
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American presidents avoid visiting Capitol Hill when major legislation is at stake.
The hard work is normally done by the White House’s congressional liaison office with the occupant of the Oval Office arm twisting in the White House.
President Trump does things differently. When the renewal of his first-term tax cuts was in the balance this week, Trump was on the Hill for some back-slapping sessions with fellow Republicans.
It worked. But only just. Republicans in the House of Representatives, where all fiscal bills start, passed a mammoth tax and spending bill by just one vote.
Victory did not come easily. Fiscally conservative members of Congress insisted that Trump’s ‘one big, beautiful bill’ was not simply helicopter money and demanded spending reductions.
The price of the tax reductions is deep cuts to Medicaid (which provides health care for less well-off Americans) and food aid.
The Congressional Budget Office has calculated that Trump’s gift to better off Americans will cost $2.7billion, adding to the mounting national debt.
It is forecast to reach 138 per cent of output over the next decade. Small surprise then, that the bond markets are quaking.
Escaping the House is only half the job done. The bill will need endorsement by the Senate, which inevitably will make changes, before it goes back to a conference committee of both Houses.
Ideally, Trump wants it on his desk by July 4, as his gift to the American people.
His tariff mayhem already has led to conniptions for US bonds. The benchmark ten-year US Treasury was trading at 4.6 per cent last night, the 30-year stock at above 5 per cent.
Should we care in Britain? Chancellor Rachel Reeves has her own budget difficulties as shown by a £20billion deficit in April, the first month of a new fiscal year. Trump’s seismic shifts are not helping.
Mining champion
Natural resources have long been a stalwart of the FTSE 100. So the fate of Rio Tinto, which recently saw off an effort to end its dual listing in London, is critical to a market under siege.
The surprise departure of chief executive Jakob Stausholm after just four years in the role could well ignite a new round of destructive shareholder activism.
Stausholm’s main task has been to restore stability after the exit of predecessor Jean-Sebastien Jacques over the destruction of the sacred 46,000-year-old Juukan Gorge.
The departing boss also played a big role in resolving a row with Mongolia over the Oyu Tolgoi copper mine.
Shareholders can have few complaints about Stausholm’s stewardship which has seen the shares advance 30 per cent.
Broker JP Morgan is among those who suggest that Rio, with a market capitalisation of £80bn, is greatly undervalued. That arguably could make it a target for a merger or takeover, which is the last thing London’s diminished markets need.
The next Rio chief executive will have some big strategic decisions to take. The miner largely remains an iron ore company although Strausholm has taken bets on lithium.
If it really wants to take the green route, copper might be a better option. Anglo-American has put copper at the core of what it does since seeing off a bid from BHP last year.
But its welcome standalone strategy has so far failed to produce the returns promised with the shares down 20 per cent since last May.
A merger creating an all-British mineral champion might find favour. South Africa, which regards Anglo as one of its own, might have objections.
There is no shortage of internal or external candidates for Rio’s top job. As the search begins, chairman Dominic Barton, a China and Asia expert, should bear in mind Rio Tinto’s deep British roots.
Westward ho!
The City already has been greatly diminished by the escape of UK firms to the United States.
Research by PwC has found that the value of British headquartered companies in America has reached an astonishing £1.8 trillion.
Some 91 UK firms, the most in Europe, are listed on Wall Street. That’s not far short of the £2.6 trillion valuation for the whole of the FTSE.
Repatriating lost firms, at this stage, may not be an option. Stopping the outflow is a no-brainer.
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