US politics likely to get messy next week – Nomura

According to the analysts at Nomura, the challenge for President Trump will be that next week Congress returns, which means a renewed focus on healthcare reform and fiscal policy and the administration will also have only four days to put together an agreement to avert a government shutdown.

Key Quotes

“President Trump has seen a moderate gain in approval ratings with Congress in recess and his shift to international issues. However, his overall approval rating at 40% according to Gallup is still below most other Presidents in their first 100 days. This average does mask a deep polarisation among the US voting public, with Republicans’ approval rating of President Trump at 87% and Democrats’ approval at a meagre 10%. But recent special elections in Kansas and Georgia have shown that even Republican strongholds are coming under pressure which suggests the Trump “halo effect” may be waning.”

“If we look at a demographic profile of Trump support, we find that there are competing demands, which should favour pragmatism over dogma. For example, he has more support from higher earners than lower earners, but also from the less well-educated. He has a notable edge with the elderly and the religious, which would have implications for government spending (Medicare and Planned parenthood). The challenge for President Trump will be that next week Congress returns, which means a renewed focus on healthcare reform and fiscal policy which would likely mean resolving these competing demands.”

“The administration will also have only four days to put together an agreement to avert a government shutdown. While our base case is that it is successful, the risks of a more negative outcome are high.”

“Critical components of any vote to pass the continuing resolution (CR, the agreement to fund the government) will require balancing the interests of the Freedom caucus who may want to de-fund Planned Parenthood, defence hawks who want increasing military spending at the expense of Federal cutbacks elsewhere and Democrats who would want continued funding of various government programmes including Planned Parenthood and preventing funding of a Mexican wall. We need to remember that for the CR to pass, 8 Democrats will need to support the resolution in the Senate for the critical 60 votes to be reached. This all suggests that the recent Trump bump may be short-lived as the messiness of domestic politics returns; this could keep pressure on the dollar.”