Trump fright for bonds: President risks having a Liz Truss moment, says ALEX BRUMMER

Importance Score: 75 / 100 🔴

American presidents typically steer clear of Capitol Hill when significant legislative initiatives are at stake. In a departure from tradition, President Trump intervened directly this week as lawmakers considered renewing his first-term tax cuts. This hands-on approach underscores the high stakes involved and the importance of securing Republican support for his economic agenda.

Trump’s Tax Cut Push: A Close Vote

Ordinarily, the White House’s congressional liaison office manages such efforts, with the President engaging in persuasion from the Oval Office. However, Trump opted for a more direct approach, engaging in personal interactions with Republican members of Congress.

This strategy proved effective, albeit narrowly. The House of Representatives, the chamber where all fiscal legislation originates, approved the sweeping tax and spending bill by the slimmest of margins – a single vote.

Achieving victory required significant concessions. Fiscal conservatives in Congress voiced concerns that Trump’s proposal resembled unfocused spending. They demanded specific spending reductions in exchange for their support of the tax cuts extension.

The Price of Tax Cuts: Program Reductions

The agreement to secure the tax reductions involved substantial cuts to critical social programs, including Medicaid (which provides healthcare to lower-income individuals) and food assistance initiatives.

According to projections from the Congressional Budget Office, Trump’s tax package will add $2.7 trillion to the national debt, further escalating the country’s financial obligations.

The national debt is projected to reach 138% of total economic output within the next decade, a concerning prospect for financial stability. Consequently, bond markets are displaying signs of apprehension.

Senate Hurdles and July 4th Deadline

Passing the House represents merely the first phase. The bill now proceeds to the Senate, where revisions are anticipated. Subsequently, the legislation will return to a conference committee comprised of members from both chambers to reconcile any differences.

President Trump aims to have the final bill approved and ready for his signature by July 4th, positioning it as a benefit for the American populace.

However, his existing tariff policies have already created turbulence in the U.S. bond market. The benchmark ten-year U.S. Treasury yield recently reached 4.6 percent, while the 30-year yield surpassed 5 percent.

The implications extend beyond U.S. borders. With her own budgetary challenges, as evidenced by a £20 billion deficit in April, Britain’s Chancellor Rachel Reeves faces additional complications from the seismic economic shifts initiated by Trump’s policies.

Rio Tinto’s Leadership Transition

Natural resource companies have consistently been prominent constituents of the FTSE 100. Therefore, the trajectory of Rio Tinto, which recently thwarted an attempt to discontinue its dual listing in London, is crucial for a market under pressure.

The unexpected resignation of Chief Executive Jakob Stausholm, after only four years in the position, could trigger renewed shareholder activism.

Stausholm’s primary objective had been to restore stability following the departure of his predecessor, Jean-Sebastien Jacques, who resigned amid controversy over the destruction of the ancient Juukan Gorge.

The outgoing CEO also played a significant role in resolving a dispute with Mongolia concerning the Oyu Tolgoi copper mine.

Shareholders generally have expressed satisfaction with Stausholm’s tenure, during which the company’s share price increased by 30 percent.

JP Morgan analysts suggest that Rio Tinto, with a market capitalization of £80 billion, is significantly undervalued. This undervaluation could make the company a target for a merger or acquisition, an undesirable outcome for London’s already diminished markets.

Strategic Decisions for the Next CEO

The incoming Rio Tinto chief executive will face pivotal strategic decisions. Although Stausholm invested in lithium, Rio Tinto largely remains an iron ore producer.

If Rio Tinto seeks to enhance its focus on green initiatives, copper may present a more promising option. Anglo-American has prioritized copper since resisting a takeover attempt by BHP last year.

However, Anglo-American’s independent strategy has yet to deliver the anticipated returns, with the company’s share price declining 20 percent since last May.

A merger to create a British mineral champion could garner support. However, South Africa, which views Anglo-American as one of its own, might object.

There is no shortage of internal and external candidates for the CEO position at Rio Tinto. As the search process begins, Chairman Dominic Barton, an expert in China and Asia, should remember Rio Tinto’s strong British foundations.

The Lure of Wall Street

The City of London has already experienced notable losses due to UK companies relocating to the United States.

According to research from PwC, the total value of British-headquartered companies listed in America has reached an impressive £1.8 trillion.

Approximately 91 UK companies, the highest number in Europe, are listed on Wall Street. This figure is approaching the entire valuation of the FTSE, which stands at £2.6 trillion.

Repatriating these companies may no longer be feasible. However, preventing further outflow is of utmost importance.

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