The Three "Plan B" FX-Response Scenarios
Citi's Greg Anderson provides a quick-and-dirty scenario outline for the FX (and implicitly market) implications of today's 'Plan B' vote.
US House Speaker Boehner has promised to hold a vote on his so-called ‘Plan B’ proposal today. There is no published time for the vote as of yet. Boehner has a scheduled press conference at 1:15 PM EST, but beyond that the schedule is flexible. I suspect that if a vote is in fact taken it will be done late in the day after US markets have closed.
Although “Plan B’ is beginning to look more like something that was thrown together to mollify his party rather than to pressure Obama and the Democrats, I would still venture to say that its primary intent is to bring a deal on ‘Plan A’ quickly. With that in mind, its passage may not matter much to markets one way or another. Democrats have already said that it won’t be brought to a vote in the Senate, so it is more symbolic than real. With that in mind, I can see three scenarios:
- Scenario 1: If Plan B doesn't pass because Obama caves in on negotiations and gives Republicans the 'Plan A' solution they want some time before tomorrow’s US close, then markets will celebrate. Some compromise between Obama's last proposal and Plan A would probably bring a 1% USD selloff.
- Scenario 2: If Plan B doesn't pass today or tonight because Boehner can't keep his party members together, then markets will likely sell off. What that would demonstrate is that the Tea Party and/or other factions in the Republican Party will not vote for any deal that raises taxes, which would make reaching any type of compromise by Dec 31 difficult to fathom. I would imagine something like a 2% USD rally.
- Scenario 3: If Plan B doesn't end up coming to a vote today or we don’t at least get a firm time scheduled for a vote tomorrow, markets will probably view that as a sign that progress is being made on Plan A and not react much. However, if the rumor is that no vote will be called because Boehner counted votes and realized that even Plan B is destined to fail, then we reduce to a Scenario 2 price response.