The political risk from Donald Trump’s increasingly chaotic presidency continue to concern financial traders. Resignations and rumours of resignations have been pulling markets around recently amid concern over the impact it has on President Trump’s ability to substantially achieve anything in the White House. Markets will continue to focus on Trump but also look towards the Jackson Hole Economic Symposium this week. We consider the outlook for forex, equities and commodities.
In late 2016, the “Trump Trade” was coined as Treasury yields, the dollar and US equities all rose strongly on the back of promised deregulation and fiscal reform/stimulus. Although the “Trump trade” has been steadily unwinding throughout 2017 with yields and the dollar lower, US equities have been holding up, helped by improved corporate earnings and reduced expectations of the speed of Fed tightening. However, in the wake of the terrible and morally unacceptable events in Charlottesville, there seems to have been some sort of line crossed by Donald Trump. In failing to entirely denounce the white supremacist/Nazi protestors, Trump has effectively validated them as part of US society in the 21st Century. This is something that many feel is utterly abhorrent. Erstwhile supportive CEOs have taken flight, whilst market sentiment was hit by the erroneous rumours of Gary Cohn’s resignation. Cohn is Trump’s economic advisor and a key component in Trump’s tax reform. Steve Bannon’s resignation has shored up Cohn’s position but if he leaves too then Trump’s credibility crumbles further. Trump has become a liability (if he was not already), and with Treasury yields falling, the dollar lower and US equities selling off, suddenly the “Trump Trade” could be seen as a negative sentiment trade. Trump has been smug to link himself to the strength of the equity markets, but this could easily turn into a decisive reverse mode if someone like Cohn does actually resign.