Trump Moves Markets


Trump Moves Markets.

Trump’s twitter account went into overdrive today as comments moved markets in both directions and ending with markets close to unchanged on the day. The volatility on the day was inspired by Trump’s early comment that he would withdraw from NAFTA, no doubt looking to test market reactions. The equity markets sold off and bonds staged a comeback of sorts as the comment led to expectations of slower growth. This comment was later followed with Trump tweeting that he would remain after being convinced by the Mexican President to stay.

Trump’s 100 days finishes on Saturday. To date the Administration has achieved nothing other than a few executive orders. He floundered on repealing Obamacare, and his tax policy has been met with skepticism as many believe that the ambition will not be realised. His policy on immigration has met with court challenges, he has backed away from calling China a currency manipulator and has not progressed his wall. His flip flopping across a number policies will eventually come back to haunt him. His big win is getting a judge, Judge Gorsuch elected to the Supreme Court.

Trump’s big challenge remains as his tax plan and the economic growth that underpins his plan. Trump looks to Reagan and has taken some policy from Reagan’s play book. However the economic conditions are significantly different. Reagan came at a time when technology and IT were starting to make a difference in innovation, leading to productivity gains and rising wages. Interest rates were high and the Federal Reserve had the opportunity to reduce rates thus further stimulating the economy.

Today the economy has been growing at around 2% for the last 8 years and yet the animal spirits have not been unleashed. Productivity has fallen and real wages have fallen and interest rates are probably as low as they can realistically fall. The Fed is likely to be raising rates rather than lowering rates and any rate increase would lead to a slowing rather than an acceleration. Trump also has the added burden of a significantly higher deficit and is looking to significantly increase that with a tax cut. Trump’s blatherskite antics have also polarised politics making it extremely difficult to enlist Democrats to assist in the passage of Bills and that is very different to Reagan who had the benefit of both Democrats and Republicans assisting the passage of Bills.

Trump is hoping to repeal the Obama Care Bill again, but before Saturday and this is looking difficult to achieve.

Markets are starting to look on Trump as hot air. The bond market is suggesting that Trump is unlikely to do much as rates remain persistently low. The 10 year traded to close at 2.30%, the yield curve steepened a little about 1 pt and 2 pts in the long end but shows no sign of alarm. Bonds simply don’t believe that Trump’s agenda will add up to much.

The spreads closed as 2/10 at 105.70, 10/30 at 66.80 and the 2/30 closed at 170.20. The 10 year Bund closed at 0.296%, rallying because the ECB thought inflation was tepid. Swedish bonds rallied after the central bank extended its buying programme.

Oil fell after Libya announced it had reopened its biggest field and U.S. production rose.  Oil slid 1.3%. Iron ore looks likely to fall after the World Bank warned of increased production leading to a glut and also after one of the largest iron ore producers commented that many low cost producers were ramping up production.

The equity market waned and waxed following Trump’s twitter comments and closed flat up 0.03%. Ford provided its quarterly guidance and the numbers were not pretty. The profit fell some 35% based on weaker car sales and especially weak sales in their highly profitable SUV’s whilst truck sales were also down. Attention will now turn to GM which has yet to report. GM has had issues of late with sales and slowing truck sales.

Aussie Market Today.

With the weekend looming large and a flat U.S. equity market, the aussie equity market looks likely to be flat. The iron ore comments are likely to have an impact on some of the resource shares as the expectation is for the iron ore price to fall further. As capital flows affect currencies, the Aussie dollar could be under pressure for a little while.

Bonds should be steady on the day and are probably more likely to be slightly weaker than stronger. Today marks the end of the month and traders and managers may be inclined to take a little risk off the table.