The Supreme Court delivered a split decision on Thursday that left President Trump with a single victory and three significant losses, sending ripples through financial markets already on edge. The rulings, which touched on executive privilege, tax returns, and immigration, have profound implications for the President’s financial opacity and legal liabilities. Markets, which had been pricing in a degree of political risk, reacted with muted volatility, but the underlying tensions are far from resolved.
The sole win for the Trump administration came in a case involving the termination of the Deferred Action for Childhood Arrivals (DACA) programme. The Court ruled 5-4 that the Department of Homeland Security could proceed with ending the policy, though the decision was a procedural one, leaving the door open for further litigation. This outcome was seen as a modest relief for the administration, but it was overshadowed by the three defeats.
The most consequential defeat was the Court’s 7-2 decision to uphold a subpoena from the Manhattan District Attorney for Trump’s financial records. The ruling makes it clear that the President is not immune from criminal investigations while in office. For bond markets, this raises the spectre of long-term legal entanglements that could distract from fiscal policy. The prospect of prolonged legal battles is a recipe for policy paralysis, and that is exactly what the bond market fears most. Gilt yields dipped slightly on the news, reflecting a flight to safety as investors digested the implications.
The second defeat came in a related case concerning congressional subpoenas for Trump’s financial records. The Court sent the case back to lower courts, effectively delaying the release of documents until after the election. While this is a temporary reprieve for the President, the underlying legal principle that Congress can investigate the President’s finances has been upheld. This introduces a layer of uncertainty that markets abhor. The dollar weakened modestly against a basket of currencies, and gold prices ticked up as investors sought haven assets.
The third defeat involved a challenge to the President’s ability to fire the head of the Consumer Financial Protection Bureau. The Court ruled that the structure of the agency, which limited the President’s removal power, was constitutional. This decision constrains executive authority and reinforces the independence of regulatory bodies. For financial markets, this is a double-edged sword. On one hand, it curbs regulatory unpredictability, but on the other, it signals that the President’s influence over financial oversight is limited. The banking sector showed little immediate reaction, but the long-term implications for deregulation are now less clear.
The markets’ reaction has been characteristically cool. The S&P 500 and FTSE 100 both opened flat, with minor movements in sectors sensitive to regulatory changes. The real story is in the bond market. The 10-year Treasury yield fell by three basis points to 0.68%, while the 30-year yield dropped to 1.45%. Investors are rotating into duration, a classic sign of risk-off sentiment. The yield curve flattened, with the spread between 2-year and 10-year notes narrowing. This suggests that the market is pricing in a higher probability of economic headwinds, partly driven by political uncertainty.
What does this mean for the UK? The spill-over effects are already visible. The FTSE 100, with its heavy weighting in multinationals, is vulnerable to a weaker dollar and global risk aversion. The pound sterling has been range-bound, but the political turmoil across the Atlantic could strengthen the dollar as a haven, putting pressure on sterling. The Bank of England will be watching closely. Governor Bailey will not want to add to the uncertainty with any dovish surprises at the next meeting.
The bottom line is this: the Supreme Court rulings have not resolved the underlying political and legal risks surrounding the Trump administration. They have, if anything, increased them. The market’s initial calm is likely a lull before the storm. Investors should brace for higher volatility as the election approaches and as legal battles intensify. Fiscal responsibility is already under threat, and these rulings will do nothing to restore it. The gilt market, in particular, is a minefield for the unwary. Central banks may need to step in if the sell-off gathers pace, but that would be a capitulation of market discipline. That is the last thing we need.
