This summer has revealed the SSA market’s impressive stamina. Rather than the traditional sprint through the early summer, followed by a more sedate July and a dead halt in August, the market has maintained a Mo Farah-esque pace all the way into the third week of August.
Perhaps that’s just as well. 2016’s final quarter is riddled with hazards, and the public sector market looks primed to shut up shop early this year.
Italy’s constitutional reform referendum could well strike eerily familiar notes to Brexit. Italian prime minister Matteo Renzi may find himself in David Cameron’s rather unenviable shoes: those of the leader who shoots himself in the foot with a misfiring referendum.
And, of course, there is the approaching US presidential election, likely to be such an extravagantly theatrical affair that few borrowers will be keen to share the stage.
Donald Trump’s rambunctious rhetoric has the potential to wreak havoc on capital markets.
Trump’s campaign does appear to have faltered — his approval ratings have dived steeply since the Republican National Convention in late July — and Hillary Clinton has picked up a solid lead. However, her support primarily stems from younger voters, who have historically proven far less likely to show up on voting day.
Clinton’s lead may seem unassailable but then, we have never had an election cycle quite like this. In the 83 days between now and the election, no one can guess what will come out of Trump’s mouth or how voters will react. And of course, the regularly scheduled drip feed of Clinton muck out of WikiLeaks may accelerate damage to her already-battered credibility.
Borrowers must not relax in the expectation of middle-of-the-road Clinton sweeping into the White House to the relief of markets.
Should Trump’s campaign undergo a reversal of fortune, the economic fallout could be, in the words of (somewhat biased) former US Treasury secretary Larry Summers, “the worst trade war since the Great Depression”.
Summers, who served under former president Bill Clinton, has his own political leanings, but Trump is a loose cannon. Unpredictability does not make for comfortable funding conditions.
Issuers must be prepared for an extremely turbulent fourth quarter. It’s by no means a certainty, perhaps not even likely, but, if Trump makes it to the White House, or even near it, issuers with cash still to raise will find the costs severe.