Incumbents in Trouble//Joe, Emmanuel & Rishi's No Good, Terrible, Very Bad Week

2024’s incumbent leaders have governed through a global pandemic, cost-of-living crisis, upticks in migration and climate change-related emergencies and more, and most are faring badly. That in itself is unsurprising; our question must be on how disruptive the challengers to the status quo are, and by what margin.

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We flagged in Q1 that this summer would be a “Danger Zone” for global politics. The explanation is that this period is the “last chance saloon” for change?(by choice)?before the US elections in November—the final opportunity to resolve differences, consolidate gains and/or minimise losses. This?window of time has been further complicated by?the calls for?snap elections in the UK and France, and the?earlier-than-usual?timing of the first US presidential debate, each move triggering unintended consequences.?The week ahead is going to be a long one; good for building your stamina in the very political 2H of 2024 to come.

French Elections: FN Nearly Doubles its Support—But Parliamentary Majority Looking Unlikely

Round one of French legislative elections on Sunday saw extraordinarily high turnout, with Marine Le Pen’s RN coming in first place with 34.5%, but, crucially, falling short of the level needed to command a majority in parliament. This result is in line with expectations, but has been described as a “political earthquake” nevertheless. The Left bloc took second place with 28.5%, and Macron’s centrist party ended in third at 22.5% (results via IFOP).

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The fact that the far-right in France has broken through the “cordon sanitaire” is not only concerning on various levels, but it is likely to trigger civil unrest; France’s wartime history means that the populist right is not just objectionable, but downright abhorrent to many.?Without?justifying the enormous gamble that Macron has taken,?it bears remembering that?strong performance?by?extreme parties in the first round of French elections is not unusual. It?is the results of the second round on July 7th?that we will all be on the edge of our seats about, given the implications for eurozone stability, Ukraine policy and more.

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That said, we do not believe that even a strong performance by the RN in the second round and?subsequent “co-habitation”?(Macrons stays on as president—presidential elections are not due until 2027)?will lead to a eurozone meltdown. The worst effects are likely to be felt in the CAC40, especially French banks, and in terms of FDI and summer tourism in the event of civil unrest.

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The final result of the 2024 French legislative elections will shake up France, the EU and the business establishment in the developed world, which has long worried about populism. These worries are well-founded: populism is the gateway drug to fascism, a word that is thrown about too easily, but can be recognised by its key traits of post-truth gaslighting, centralised authoritarian rule and demands of citizen and business loyalty to the interests of the state. As we?highlighted?during our client call last week, Macron’s gamble is so far playing out as he had hoped: causing a “controlled explosion” that will force many three-way races in the second round and, he hopes, neutralise the overall result for the FN and the Left bloc?and require considerable?political negotiating, potentially reducing the extremes?of the policies that can be implemented. But it remains a very high-risk proposition?where his centrist party may lose its remaining legitimacy and the next 12 months—the soonest period that Macron can call another election—we see France turning inward to deal with domestic political matters.

Independence Day—from the UK Conservative Party

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The most straightforward of our three political flashpoints is the UK election on Thursday, July 4th. A Labour victory against the Conservative party, in power for 14 years spanning austerity,?triggering the EU referendum, and more, was long expected and--to answer our exam question--is likely to be the?least?disruptive of the three?political flashpoints?with respect to the global business and investment climate and in terms of policy continuity at a global level (e.g. Ukraine/NATO). There is even hope for some upside potential for UK plc in terms of better ties with the EU. The most straightforward of our three political flashpoints is the UK election on Thursday, July 4th.

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A Labour victory against the Conservative party?has long been?expected and--to answer our exam question--is likely to be the?least?disruptive of the three with respect to the global business and investment climate and in terms of policy continuity at a global level (e.g. Ukraine/NATO). There is even hope for some upside potential for UK plc in terms of better ties with the EU.?Nevertheless, we will be watching closely for the performance of Nigel Farage’s new Reform party, which aims to claim the mantle of the official opposition and erode support for the Conservative party as well as the size of Labour’s majority.

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US Presidential Debate: Will Dems Risk Aversion Hand Trump his Second Victory?

On Friday I wrote that Biden’s dismal debate performance had upended the race, and that he wouldn’t be able to reverse the poor optics of his frailty. ?I stand by this assessment. ?Since the?eve of the debate, a large number of observers and critics have made similar judgments-but notably Team Biden has rallied around their candidate, dismissing the criticisms as coming from “pundits”?who are out of touch. The party faithful have highlighted that the day after the debate the president came across much better during his campaign events—and that another $26m in donations has entered the campaign’s coffers since debate night.

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It is by no means a straightforward option to replace Biden as the nominee: Biden won the Democratic party primaries, and is due to be officially declared the candidate at the Democratic National Convention in Chicago on August 19th. He cannot be forced out, but rather would have to volunteer to step aside. US presidents are not known for malleability, and Biden is highly motivated by his view that only he can beat Trump.

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One should also not discount the sheer number of people whose personal political futures and fortunes are connected to the president continuing his campaign. And of course an alternate candidate represents a massive roll of the dice at a time when Biden continues to poll dead even with Trump at the national level, well within the margin of error. I think the polls?will start to shift in the next 1-2 weeks; the perception lag is longer than many realise.?If Biden remains the candidate and experiences a high-profile “senior moment” closer to November 6th, the political costs will be much higher.

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What happens next can’t be controlled by the?Biden?campaign.?In my view, if?Biden can avoid another public episode of fragility, mental or physical, between now and August, he will likely remain the Democratic party nominee. If this transpires, a Trump victory?then?becomes more likely, because it’s not “one bad day” that the debate revealed, but the acceleration of cognitive decline, and this will only become more apparent over time. The clock can’t be rolled back, nor can it be perpetually covered up. The argument that a slower but honourable Joe Biden is a better option than a reckless and erratic Donald Trump resonates for many, but it obscures the real question facing Democrats: do they want to win? If so, the window of time is closing fast.?Think bank to the damage done to Hillary Clinton’s campaign in September, when she was comfortably ahead in the polls, by the double whammy of the Comey report and an apparent fainting spell while ill at a 9/11 commemoration.

In the short-term Trump is the clear beneficiary.?But market participants should not interpret the change in the dynamics of the US presidential race?to mean a Trump victory is?now inevitable. Rather, the?already sky-high?amount of uncertainty and volatility in the U.S. presidential campaign?has markedly increased.

Tina Fordham quoted in John Authers' article, “'Non!' to Macron Opens Longest Week in Politics.”?

Read the full piece here: Bloomberg

?"Wow, I've Never Known You Tina to Sound Alarmist" - Frank Holland on CNBC: Biden's Debate Performance Rocks the Democratic Camp

Prior to the debate I said that there were three S’s I would be watching for: Standing, Sentience and Swipes, meaning the swipes the candidates would be taking at each other. Biden managed to stand, but the impact of his efforts to make substantive answers to policy questions was overtaken by his raspy voice, occasional freezes and loss of his train of thought.

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The campaign noted that Biden was suffering from a cold, but in my view, despite Trump’s meandering and being frequently off point as well as the outright lies on a number of topics, was overshadowed by Biden’s alarmingly shaky performance, looking frail and at times, haunted, especially in side-by-side shots. It will be a very difficult if not impossible perception to reverse, and is unlikely to have played well with the large number of Independent and undecided American voters.

Fiction, Fantasy, and the 3 Ss: with Romaine Bostick and Alix Steel on Bloomberg TV