Rabobank: Questions Swirl What The Economic Program Of A Harris Administration Might Look Like

By Benjamin Picton, Senior strategist at Rabobank

Post Hoc Ergo Propter Hoc

Stocks struggled for direction yesterday as markets looked ahead to a packed data calendar for the rest of the week. The S&P500 closed flat, the NASDAQ rose 0.21% and the EuroStoxx 50 closed marginally lower. Active Brent crude futures defied lower demand estimates from OPEC+ to rise 3.31% (the most since October last year) as markets continue to brace for escalation in the Middle East, and the Treasuries curve barely moved at all.

Energy markets are particularly interesting at the moment. Dutch TTF natural gas futures took a bit of a breather yesterday after rallying for four-straight sessions last week. Active TTF futures closed down 1.79% following signs that Ukraine’s military incursion into Russian territory has not materially interrupted natural gas flows through the Sudzha metering point. Meanwhile, UK National Balance Point gas prices hit their highest levels since December last year before selling off into the close.

Bloomberg reports that Crown LNG is aiming to construct a fourth British LNG import terminal by 2027, cutting the UK’s reliance on pipeline gas from the continent but also locking in a higher cost base for British supplies under normal market conditions. Rabobank Energy Analyst Florence Schmidt expects that any further geopolitical developments in the Middle East or Russia/Ukraine will keep European gas prices well supported in the near term, with warm weather providing the only bearish influence on prices.

Gold prices are again trading close to all-time highs after gaining 1.7% yesterday. The gains in gold came despite little change in the Bloomberg Dollar spot index but might be a reflection of nerves over geopolitical issues and a marginal increase in market pricing of rate cuts for the September Fed meeting (-39.2bps today vs -38bps yesterday). US PPI figures released later today will provide further direction to markets before the key CPI release tomorrow and jobless claims on Thursday.

PPI aside, the other major event today is Donald Trump’s return to the X platform in a live exchange with Elon Musk. In an extended (and, at time of writing, ongoing) interview Trump excoriated the Biden administration’s performance on dealing with the pandemic, controlling inflation, the border and international affairs while highlighting the strong economic performance of his own administration. The latter might contain some degree of ‘poast’-hoc fallacy (as does the Biden/Harris claims on job creation) as the Trump administration benefited in-part from ongoing recovery from the 2007/8 financial crisis.

Trump’s return to X might be interpreted as an attempt to regain the initiative in a Presidential race where some polling and betting markets have Kamala Harris taking a lead in likely electoral college outcomes. The Trump campaign appears to have been caught flat-footed by the switchout of Biden for Harris, but there’s still plenty of water to pass under the bridge before election day in November.

While Harris is enjoying a poll bump at the moment, questions are being raised about what the economic program of a Harris administration might look like. The Trump trade is already reasonably well understood, and the likely inflationary effects of an expansion of tariffs, tax cuts and easier monetary policy are incorporated into some market forecasts (including ours). Harris’ economic program remains a comparative mystery, but the Vice President has started to put some flesh on the bones recently by suggesting that she would safeguard the independence of the Fed while adopting Donald Trump’s idea of exempting tips from income tax.

Critics have pointed out that Harris’ adoption of Trump’s plan to exempt tips from income tax is at odds with her having cast a tie-breaking vote to pass Joe Biden’s Inflation Reduction Act, which included a provision to hire 87,000 new IRS agents to tighten up on income tax compliance. The Harris campaign has indicated that it plans to release further details of the Vice President’s economic agenda as early as Friday this week. Might that announcement contain some post-hoc fallacies of its own?