The City woke to news that Donald Trump has thrown his weight behind Ken Paxton in the Texas Attorney General race. On the surface, a local election in a distant state. But for those of us who watch capital flows, this is about the continued unraveling of institutional credibility.
When a former president endorses a figure under indictment for securities fraud, the message to markets is clear: rule of law is negotiable. British observers have been muttering about a populist wave for months, but this is different. This is a direct attack on the regulatory architecture that underpins investor confidence.
I’ve seen this playbook before. In the late 1970s, when union power trashed fiscal discipline, capital fled the UK. Today, the flight is from America.
Gilt yields are rising not because of robust growth, but because investors are pricing in a risk premium on governance. If Texas, a redoubt of business-friendly policy, becomes a Petri dish for populist legal theory, then every bond trader in London will reassess their US exposure. The pound may strengthen against the dollar on this news, but that’s a false comfort.
A weak dollar signals a loss of global trust. And trust, as any financier knows, is the most fragile asset. The UK government’s own spending binge has already spooked the markets.
Now we have a contagion from across the pond. The bottom line? When the world’s largest economy starts flirting with legal nihilism, the safe havens shrink.
Gold will hit new highs, and the Bank of England will have to raise rates faster than it wants. The populist wave isn’t just political. It’s a balance sheet event.
