On Wall Street, Donald Trump’s election win spelt pain for the dollar and stock markets right up until the moment he began his acceptance speech in the early hours of November 9 at the New York Hilton.
Then the dollar began a trough-to-peak surge that would leave it up almost 3 per cent, a performance only bettered in 2016 on the day after the Brexit vote. S&P 500 futures reversed course, as the stock market went on a rally that has taken it to new intraday records.
The relatively gracious acceptance speech in which the billionaire struck a conciliatory note, combined with Republicans keeping control of Congress, suddenly offered an upbeat scenario to angst-ridden markets: tax cuts and fiscal stimulus would drive economic growth and corporate profits higher.
Since that November morning, investors and traders have subsisted on a diet of tweets and remarks snatched by reporters inside Trump Tower and Mar-a-Lago, the president-elect’s Florida retreat. That should change on Wednesday, with a promised press conference from Mr Trump in New York.
Citigroup’s FX team said on Wednesday there was “a certain buzz in the air” ahead of the press conference. The dollar has this week been largely muted in anticipation of what the president-elect might say.
His inauguration is less than two weeks away but Alan Ruskin, a currency strategist at Deutsche Bank, points out that event will be a rehearsed one in which Mr Trump is likely to try to strike a presidential style and tone.
By contrast, “the press conference has more spontaneous cut and thrust, and the outcome is less certain”, Mr Ruskin said.
It is not just the prospect of the press conference delivering a more unvarnished Trump that is generating interest from investors who have thrown their weight and money behind the so-called Trumpflation trade. Rather, it is that there is little clarity on which of his many policy pronouncements will become reality.
“The press conference will be more market-making than the inauguration,” said Nick D’Onofrio, chief executive of UK-based hedge fund North Asset Management.
In foreign exchange markets, the dollar has had a striking run since the election, with the index measuring the currency against a basket of its peers rising almost 8 per cent. US equity funds have attracted roughly $64bn since the US election, according EPFR.
Last week, a correction weakened the dollar more than 2 per cent until Friday’s well-received US jobs report for December halted the slide. Some, though, cannot shake off doubts about the scale of the rally in both the currency and stocks.
“The post-election rally was overdone, both a bit in dollar terms but primarily in US equities,” Mr D’Onofrio said.
The level of the dollar, which is about $1.05 against the euro, has “absorbed” likely stimulus from a House Republicans’ bill on tax reform and from infrastructure spending, argues Steven Englander, head of currency strategy at Citigroup, “but the full dimensions are very uncertain”.
If the president-elect and House Republicans pass his stimulus plans then US economic growth would be heading north of 3 per cent, but few forecasts put GDP in that range.
“The next dollar step has to be clarification of the content of the fiscal and infrastructure package. It may come from Trump this week or it could come from the House pushing its bill forward,” said Mr Englander.
So dollar bulls will be tuning in on Wednesday. Net long dollar positions have risen for three weeks in a row, according to data from the Commodity Futures Trading Commission.
Derek Halpenny, a currency strategist at MUFG, said: “We are unlikely to see further advances until the market gets clarity on the direction of policy in the initial phase of his presidency.”
In that sense, said Mr Halpenny, the Trump press conference assumes significance for the dollar. So too, for stocks, with the Dow Jones Industrial Average toying with the 20,000 level and the S&P 500 up 6.4 per cent since polling day.
Shareholders and boardrooms are having to get used to Mr Trump firing off tweets that move stock prices, including those of Lockheed Martin, Boeing and General Motors.
It is not particularly useful to announce policy intentions via Twitter, said Marc Chandler of Brown Brothers Harriman, “but the tweets about specific companies has produced sharp market reactions”.
Last week was marked by a bombardment of tweets across issues including China, Mexico, Obamacare, Congress, Toyota, Russian hacking and performers at his inauguration.
Putting aside the communication tools he uses to deliver policy, the nagging suspicion for some is that a Trumpflation trade will soon give way to a Trump “disappointment” trade. By contrast, bulls will be expecting the press conference to add some juice to stocks and the dollar, while hurting sovereign bonds.
In one tweet last week, Mr Trump mocked Arnold Schwarzenegger’s ratings as host of the Celebrity Apprentice, in comparison to “the ratings machine, DJT”.
Ratings for Mr Trump’s press conference will be worth watching. Investors and traders will be helping the numbers.
