The first US president to attend an NBA Finals game received a chorus of boos from the crowd in New York last night. For the markets, this is noise, not news. The yield on the 10-year gilt barely twitched. But the spectacle raises a familiar question: how much does political sentiment matter for the bottom line?
The answer, as usual, is less than the headlines suggest. Gilt yields are driven by inflation expectations and fiscal credibility, not crowd reactions. The real story is the capital that has been fleeing US equities in anticipation of rate cuts. That flight to safety is accelerating, and no amount of presidential booing will alter that trajectory.
Yet there is a cautionary tale here. A president who cannot command respect at a basketball game may struggle to command confidence in a trade war. The market abhors uncertainty, and a weakened leader at home signals potential volatility abroad. Currency markets are already pricing in a higher risk premium on the dollar.
Inflation remains the elephant in the room. The core CPI ticked up last month, and the Fed is showing no signs of backing down. If the president's approval continues to slide, the fiscal stimulus pipeline could slow. That would be a silver lining for bond vigilantes like myself.
For now, the booing is just theatre. But theatre can foreshadow policy paralysis. And policy paralysis is bad for business.
