Between impeachment proceedings, the U.S. presidential election and a minority government in Canada, politics will be “an interesting driver” for markets in the coming year, CIBC’s Avery Shenfeld says.
While President Donald Trump likely won’t be removed from office, the extent to which the hearings dent his re-election prospects will be important, said Shenfeld, managing director and chief economist at CIBC Economics, in an interview last month.
Market watchers are also keeping an eye on the platforms from the various candidates for the Democratic nomination. That attention will become a “laser focus” following the Feb. 3 Iowa caucuses.
“At that point, the list of Democratic contenders is likely to start narrowing down considerably, and we’ll see who the real front-runners are,” Shenfeld said.
“Some of them lean quite to the left. Some might be a bit more scary for certain segments of the equity market than others, so we’ll be keeping an eye on who’s leading in the polls.”
Massachusetts Senator Elizabeth Warren has proposed a wealth tax and more regulation for the banking sector. While her momentum has lagged in recent weeks, some of her proposals “would be a negative for U.S. equity markets,” he said.
Still, it would be premature to price in risks associated with any particular Democratic candidate, he said, pointing to Trump’s lowly position in a crowded field in early 2016 before winning the Republican nomination.
Those following banks, pharmaceuticals, tech and other sectors that are potentially subject to regulation will take a closer look at candidates in the spring, he said.
What’s at stake for Canada?
Canadians are hoping whoever is elected will focus on healing “some of the wounds we’ve opened up on trade pacts,” said Shenfeld.
The new North American trade agreement is ratified, and the U.S. and China have reached a truce on some of the issues driving their trade conflict. Shenfeld said risks for Canada remain in the U.S.-China negotiations if an agreement compelled China to buy U.S. goods at Canada’s expense.
The U.S. budget deficit hasn’t received attention from the potential presidential contenders so far, which could be positive for Canada. Additional spending or tax relief could boost North American growth and benefit Canada, he said.
Finally, Shenfeld stressed that the presidential election isn’t the only one that matters in November, since the Senate has the power to block legislation.
“We’ll have to keep an eye not only on who’s running and winning for president, but actually whether the balance of power in Congress is going to shift,” he said.
Currently, the Democrats are in charge of the House and the Republicans hold the Senate. If that shifts to an overall Democratic tilt, it could result in some “meaningful change in U.S. policy,” he said.
As for Canadian politics, Shenfeld said we’ve become accustomed to minority governments, which typically last about two years. The more interesting developments could come provincially, he said, with fiscal restraint in Alberta and Ontario that could “be a little bit of a drag on economic growth in the coming year.”
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