President Trump is a proficient tweeter, but is he an efficent tweeter. If you trade you are well aware of the affect and volatile reaction. However do the tweets move the markets as much as you think? Goldman did a study and shared the results. What moves the markets?
President Trump is a proficient tweeter, but is he an efficent tweeter. If you trade you are well aware of the affect and volatile reaction. However do the tweets move the markets as much as you think? Goldman did a study and shared the results. What moves the markets?
Goldman Sachs focused on two genres of Trump tweets, those targeting Fed Chair Powell and those targeting the US – American trade deal. They looked at the affect on market prices and how much they moved Fed expectations.
Despite President Donald Trump selecting Jereome Powell as head of Federal Reserve he has aggressively taken out his his frustration with Powell for Fed actions or inactions and blaming the Fed for problems in the US economy.Trump never assesses any blame on his policies such as the tariffs imposed on China and Mexico.
Goldman found that all but one of Trump’s 14 tweets about Powell have been critical. He has called Powell a “bonehead,” “a terrible communicator” possessing a “horrendous lack of vision.”
Goldman Sachs looked at futures prices right before a tweet and compared them to prices 30 minutes after, importantly beyond the kneejerk reaction. Interestingly those tweets the Goldman Sachs analysts found, did not move the market in a statistically significant manner.
However Goldman Sachs found that Trump’s trade related tweets did make an impact and were found to be statistically significant with the impact as much as 14 basis points.
“There are many tweets that garner little reaction, but there are also quite a few trade policy tweets that lead to sizable swings. This is intuitive, as there are clear channels through which tariff escalation can lead to a dimmer economic outlook,” the analysts found.
Short-term bond yields have plunged in reaction to the deteriorating U.S. and global economic outlook. The yield on the 2-year Treasury fell Monday to its fourth-lowest level of the year, to 1.466%, from as high as 2.969% in November. The yield on the 10-year Treasury has dropped to 1.55% from 3.23% in November.
The moves in the stock market appear to be more timely, there is the infamous ‘phone call’ tweet after the most recent G-7 that reversed the plumging S&P 500 Futures and sent them to new all time hiughs within a matter of weeks. There is debate about whether Trump actually did have a call, however we do know he tweeted he did and the reaction the ensued.
The reaction is the key, not the validity. Will this impact stay the same. A good example of the imapct of trade and Powell came late on Tuesday the market rallied on a speech Powell was making in Denver talking about rates, futures on the S&P 500 rallied around 24 handles. However whilst he was speaking the US announced blacklists on Chinese facial recognition startups for human rights violations of Muslim minority groups. The Department of Commerce announced that the companies were blacklisted alongside 25 other Chinese businesses and government entities linked to abuses in the Xinjiang region. The three startups, SenseTime, Megvii, and Yitu, are said to be the most valuable facial recognition companies in the world. The Department of Commerce says the businesses have aided the ongoing oppression of minority groups in China with its technology. The market quickly reversed the Powell gains and fell around 30 handles to close at lows of the day. The impact from Powell clearly negated by trade war fears. The answer perhaps is the markets are more concerned about the trde war than the Federal Reserve. That concern is then amplified by POTUS tweets, after all both Chairman Powell and the trade war are both Trump creations. From the TradersCommunity Research Desk.