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Markets disappointed by Trump’s details-free speech

Stocks pared gains and the US dollar initially eased as President Donald Trump’s first address to Congress failed to provide the policy details that markets wanted — and analysts let rip with their disappointment.

“We needed him to be a leader. We needed him to give us direction. That is where he let investors down this evening,” said Paul Christopher, head global market strategist for Wells Fargo Investment Institute.

The S&P 500 e-mini futures contract — a gauge of likely stock market reaction the following day — had risen in the build-up to the speech but pared gains as Mr Trump spoke. Up 0.2 per cent as he finished, the contract still indicated a probable recovery on Wednesday, after the S&P 500 closed 0.3 per cent lower the previous day.

“He was predictably long on rhetoric and hyperbole and short on substance for those issues that we at the sharp end of markets wanted to hear about,” said Ray Attrill, global co-head of forex and fixed income strategy at National Australia Bank in Sydney, who counted two paragraphs on taxes in the entire speech. There were just 12 references in total.

We needed him to give us direction. That is where he let investors down this evening

The dollar softened as Mr Trump spoke but rallied strongly afterwards, reaching its highest levels in almost a week as investors refocused on the growing likelihood of an interest rate rise in March. On Tuesday two Federal Reserve policymakers — including William Dudley, the influential head of the New York Fed — said there was no need to wait for tax reform details before tightening monetary policy.

The dollar index, a trade-weighted measure of the currency, rallied 0.7 per cent to 101.6 as the odds of a March rate rise increased. It retreated to 101.2 as Mr Trump spoke, before rebounding to its previous day-high.

“To be honest, Bill Dudley has knocked Trump out of the financial market headlines today,” said Mr Attrill. “[Mr Trump] hasn’t embellished any of his previous rhetoric and we’re none the wiser on how committed he is to border taxes — nor on whether Congress will have a bar of it anyway.”

Analysts, and the Fed, have been seeking details on a border tax adjustment — in effect taxing goods made outside the US — which is considered one way of meeting Mr Trump’s desire to rebalance US trade.

In his speech Mr Trump said that “many other countries make us pay very high tariffs and taxes but when foreign companies ship their products into America, we charge them almost nothing”.

Stock markets in Asia, the region most likely to be affected by any sudden imposition of tariffs, pared gains slightly as Mr Trump spoke. Hong Kong’s Hang Seng index, up 0.3 per cent ahead of the speech, eased to 23,775, a 0.1 per cent gain. Tokyo’s exporter-heavy Topix index was up 0.5 per cent before the speech but afterwards was up 0.3 per cent on Mr Trump’s trade language.

However, analysts noted markets’ growing immunity to Mr Trump’s rhetoric compared with the impact of his comments shortly after he was elected.

“Markets will take away from this that the assumptions that are already built into the market are on course,” said David Donabedian, chief investment officer at Atlantic Trust. “For people looking for specific policy proposals, they might be disappointed. Basically we heard the president pounding the table on the priorities he has outlined.”

In his speech Mr Trump talked of a record $3tn gain in US stock market capitalisation since his election victory in November. While the record is correct based on Financial Times analysis, the 13.8 per cent rally — a more fair measure of different eras — that the $3tn amounts to is only the 38th largest 17-week gain in the 701 weeks going back to September 2003, when the data series analysed began.

Some markets followers did, however, manage to find an upside in Mr Trump’s performance on Tuesday.

“[It was] one of his best performances as a speaker/leader with a very optimistic tone and highly emotional stories,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management.

Via FT