New US House Speaker – Impact on Global Financial Markets
Second Round: Setback for Jim Jordan in House Speaker Bid
The second round of voting will start later today (Wednesday, October 19) to name the new US House of Representatives Speaker.
As Trump ally, Republican Jim Jordan lost the initial vote to become House Speaker on Tuesday. A second vote is now planned at 11:00 (15:00 GMT) on Wednesday.
Jordan, who believed he would win the 217 votes required to secure the speakership, came up against stiffer-than-predicted opposition from members of his own party.
Indeed, Jordan gained just 200 votes in Tuesday’s ballot. However, despite Democratic nominee Hakeem Jeffries winning 212 votes, it was insufficient as Democrats are the minority party in the House.
No. 2 House Democrat Katherine Clark initially announced the vote last Sunday. A fortnight after eight Republicans joined the Democratic minority in driving out the chamber’s previous leader, Kevin McCarthy.
The US House of Representatives Speaker is key in establishing economic policies and priorities. Their position is essential in deciding the economic trajectory of the world’s largest economy. This due to their influence over the legislative agenda, budget, taxation, trade policies, and other economic matters.
As I was quoted by Newsmax, Market Watch, Mena FN, Financial Mirror, Investor Ideas, and Morning Star, amongst other media, the next US Speaker will be less prone to make deals than McCarthy. Indeed, it makes more political sense to them to avoid being a deal-maker in this current environment.
Possible Government Shutdown and Global Market Turbulence
Consequently, the next House Speaker will more likely announce a partial government shutdown next month to gain a political advantage. Under this scenario, it is also more likely that a shutdown would be extended, unlike previous ones.
This outcome would send shockwaves throughout global financial markets.
A government shutdown generates uncertainty surrounding the US economy’s budgetary decisions with the potential to disrupt federal services. As a result, this can lead to heightened market volatility as investors become more risk-averse.
It also damages investor confidence on a domestic and international level. Investors may pull away from US financial markets, leading to a fall in asset prices and possible capital flight.
Impact on Credit Rating and Global Markets
As such, should the US government shutdown go ahead with a new House Speaker, we believe it will lead Moody’s to cut the US credit rating below AAA. This would follow from global rating agency Fitch downgrading the US government’s top credit rating to AA+ from AAA over the summer. Fitch noted fiscal deterioration over the next three years and continual down-the-wire debt ceiling negotiations. This putting the government’s ability to pay its bills at risk.
After Standard & Poor’s, this was the second major rating agency to strip the US of its triple-A rating.
Furthermore, a government shutdown would also impact the greenback, affecting exchange rates and international trade and investment. It could also affect the prices of commodities like oil and agricultural products, sparking price fluctuations in global commodity markets.
We believe that with a new House Speaker, a US government shutdown is now more likely which has the potential to create a domino effect in global financial markets.
Therefore, investors need to keep a close eye on US government developments. Its stability and decisions have a deep influence on the global financial markets.
Read my previous blog post here.