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Political volatility is becoming an economic risk

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Illustration of two dice with dollar and cent signs, exclamation points and an outline of America along each side

Illustration: Natalie Peeples/Axios

The world’s wealthiest economy — with the deepest and most liquid market — is a riskier place than it used to be for investors. And politics is a big reason.

Why it matters: “Political risk” is an investment thesis used to evaluate developing economies with histories of weak governance and social instability.

  • But the Jan. 6 riot, widespread mistrust of institutions and a polarized electorate are symptoms of an increasingly anfractuous politics making policy decisions less predictable for investors.
  • Perennial fights over the debt ceiling are one example, but some say things could get considerably worse, in ways that may have a more pronounced effect on the U.S. as a draw for global capital.

In an environment characterized by cynicism and mutual mistrust, the peaceful transition of power and the absence of politically-inspired violence – things that underpin a free market democracy – can’t be taken for granted.

Driving the news: The photo finish of the midterm elections – which sent the markets into a brief tailspin – showed just how polarized and unpredictable things have become.

  • According to Strategas’ head of policy research, Dan Clifton, Tuesday was the 8th time in 9 consecutive elections “that voters have removed the party in power,” punctuating “the most political volatility since the civil war, and that volatility creates [market] uncertainty.”

The turmoil that recently engulfed the United Kingdom — forcing the humiliating ouster of its prime minister just weeks after she took office — underscore how markets are reacting dramatically to politics and policy. It means political leaders can’t be complacent about growing social and economic risks.

  • “The only thing that makes currencies move 30-40% is a fundamental change in the politics,” Joseph Lewis, Jefferies’ managing director and head of corporate FX hedging, told Axios in an interview, referring to the U.K. pound’s plunge to near-parity with the dollar.

Populist movements like Brexit and the diminished appetite for free trade and the movement of capital are making things even dicier.

  • “With the unraveling of globalization and increase in protectionism…that policy by definition will seep into the FX market, will change how you move capital in and out of countries and how you do business,” Lewis tells Axios. Once people “start to step out of the global club, all bets are off.”

 

Yes, but: Clayton Allen, U.S. director at Eurasia Group, explained to Axios in an email that, “for domestic investors, there would seem to be little reason to change the way they perceive the U.S. relative to the rest of the world.”

  • The world is becoming more volatile, but the U.S.’ relative strength in institutions…means that this is still the first option for investment,” he said.
  • “The same dynamic looks different when you are looking at the U.S. from the vantage point of an increasingly destabilized and decentralized world, and even a less stable U.S. likely appears more attractive as a haven from global trends than other markets.”

The bottom line: For all its flaws, the U.S. is still what most investors consider the cleanest dirty shirt in a global economy wracked by instability. That said, “it does mean that investors must consider political risk more heavily in the context of the U.S. than they have in decades, perhaps ever,” Allen says.

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Quebec consumer rights bill to regulate how merchants can ask for tips

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Quebec wants to curb excessive tipping.

Simon Jolin-Barrette, minister responsible for consumer protection, has tabled a bill to force merchants to calculate tips based on the price before tax.

That means on a restaurant bill of $100, suggested tips would be calculated based on $100, not on $114.98 after provincial and federal sales taxes are added.

The bill would also increase the rebate offered to consumers when the price of an item at the cash register is higher than the shelf price, to $15 from $10.

And it would force grocery stores offering a discounted price for several items to clearly list the unit price as well.

Businesses would also have to indicate whether taxes will be added to the price of food products.

This report by The Canadian Press was first published Sept. 12, 2024.

The Canadian Press. All rights reserved.

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Youri Chassin quits CAQ to sit as Independent, second member to leave this month

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Quebec legislature member Youri Chassin has announced he’s leaving the Coalition Avenir Québec government to sit as an Independent.

He announced the decision shortly after writing an open letter criticizing Premier François Legault’s government for abandoning its principles of smaller government.

In the letter published in Le Journal de Montréal and Le Journal de Québec, Chassin accused the party of falling back on what he called the old formula of throwing money at problems instead of looking to do things differently.

Chassin says public services are more fragile than ever, despite rising spending that pushed the province to a record $11-billion deficit projected in the last budget.

He is the second CAQ member to leave the party in a little more than one week, after economy and energy minister Pierre Fitzgibbon announced Sept. 4 he would leave because he lost motivation to do his job.

Chassin says he has no intention of joining another party and will instead sit as an Independent until the end of his term.

He has represented the Saint-Jérôme riding since the CAQ rose to power in 2018, but has not served in cabinet.

This report by The Canadian Press was first published Sept. 12, 2024.

The Canadian Press. All rights reserved.

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‘I’m not going to listen to you’: Singh responds to Poilievre’s vote challenge

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MONTREAL – NDP Leader Jagmeet Singh says he will not be taking advice from Pierre Poilievre after the Conservative leader challenged him to bring down government.

“I say directly to Pierre Poilievre: I’m not going to listen to you,” said Singh on Wednesday, accusing Poilievre of wanting to take away dental-care coverage from Canadians, among other things.

“I’m not going to listen to your advice. You want to destroy people’s lives, I want to build up a brighter future.”

Earlier in the day, Poilievre challenged Singh to commit to voting non-confidence in the government, saying his party will force a vote in the House of Commons “at the earliest possibly opportunity.”

“I’m asking Jagmeet Singh and the NDP to commit unequivocally before Monday’s byelections: will they vote non-confidence to bring down the costly coalition and trigger a carbon tax election, or will Jagmeet Singh sell out Canadians again?” Poilievre said.

“It’s put up or shut up time for the NDP.”

While Singh rejected the idea he would ever listen to Poilievre, he did not say how the NDP would vote on a non-confidence motion.

“I’ve said on any vote, we’re going to look at the vote and we’ll make our decision. I’m not going to say our decision ahead of time,” he said.

Singh’s top adviser said on Tuesday the NDP leader is not particularly eager to trigger an election, even as the Conservatives challenge him to do just that.

Anne McGrath, Singh’s principal secretary, says there will be more volatility in Parliament and the odds of an early election have risen.

“I don’t think he is anxious to launch one, or chomping at the bit to have one, but it can happen,” she said in an interview.

New Democrat MPs are in a second day of meetings in Montreal as they nail down a plan for how to navigate the minority Parliament this fall.

The caucus retreat comes one week after Singh announced the party has left the supply-and-confidence agreement with the governing Liberals.

It’s also taking place in the very city where New Democrats are hoping to pick up a seat on Monday, when voters go to the polls in Montreal’s LaSalle—Émard—Verdun. A second byelection is being held that day in the Winnipeg riding of Elmwood—Transcona, where the NDP is hoping to hold onto a seat the Conservatives are also vying for.

While New Democrats are seeking to distance themselves from the Liberals, they don’t appear ready to trigger a general election.

Singh signalled on Tuesday that he will have more to say Wednesday about the party’s strategy for the upcoming sitting.

He is hoping to convince Canadians that his party can defeat the federal Conservatives, who have been riding high in the polls over the last year.

Singh has attacked Poilievre as someone who would bring back Harper-style cuts to programs that Canadians rely on, including the national dental-care program that was part of the supply-and-confidence agreement.

The Canadian Press has asked Poilievre’s office whether the Conservative leader intends to keep the program in place, if he forms government after the next election.

With the return of Parliament just days away, the NDP is also keeping in mind how other parties will look to capitalize on the new makeup of the House of Commons.

The Bloc Québécois has already indicated that it’s written up a list of demands for the Liberals in exchange for support on votes.

The next federal election must take place by October 2025 at the latest.

This report by The Canadian Press was first published Sept. 11, 2024.

The Canadian Press. All rights reserved.

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