by Luke Kawa
Donald Trump’s tweets once rattled markets more than a North Korean nuclear test, with attacks on individual companies sparking stock selloffs.
Now, the U.S. president’s tweets about upending cross-border commerce occasionally sow discontent among world leaders -- but for traders, they only matter if you’re speculating on soybeans.
“Virtually every week markets have to digest more hawkish trade rhetoric from U.S. administration officials and the President’s Twitter account,” Goldman Sachs strategists James Weldon and Charles Himmelberg wrote in a note Thursday. “We find evidence that President Trump’s tweets on trade matter fairly little for major markets.”
The pair found no “obvious relationship” between the commander-in-chief’s mentions of “trade” and “tariff” and the Cboe Volatility Index. The VIX tracks traders’ expectations for the implied swings of the S&P 500 Index over the next month, and is often called Wall Street’s “fear gauge” because it moves inversely to U.S. stocks.
“President Trump’s tweets are not statistically significant,” the Goldman strategists said.
Their conclusion marks a big change for @realDonaldTrump. As president-elect, his comment that the U.S. should “cancel order” of a new Air Force One being built by Boeing because “costs are out of control” catalyzed swift selling in the aerospace giant during the pre-market session.
In May 2017, after he took office, a Deutsche Bank analysis found that traders should “follow” the president when his tweets moved the foreign-exchange market, as any trends set in motion were likely to continue. And as recently as April 2, Trump’s tweet pledging to change the terms of the U.S. Post Office’s dealings with Amazon.com contributed to the biggest one-day drop in the the e-commerce giant’s shares since February 2016.
But, according to the Goldman strategists, things are different now.
“The only asset for which Trump’s trade-related tweets appear to have any significance is soybeans,” wrote Weldon and Himmelberg. “The result is consistent with our commodity team’s view that trade tensions should have a minor impact on commodity markets with the sole exception of soybeans, where it is not possible to completely reroute supplies should China levy tariffs on U.S. soybeans.”
The president’s track record as a asset-strategist-in-chief may be one reason traders may be loath to act to his online micro-missives. Pfizer’s time in negative territory earlier this month proved fleeting following a presidential tweet that the company should “be ashamed that they have raised drug prices for no reason.” After a brief decline, the shares recovered, although Pfizer has since agreed to delay price increases.
West Texas Intermediate crude futures rose more than 5% in the month after Trump’s tweet blaming OPEC for “artificially very high” oil prices that were “no good and will not be accepted.” Aluminum also rallied in the month after the president indicated he wasn’t surprised that prices had fallen despite tariffs. Both commodities are now back near levels seen when Trump hit the “send” button.
So, the law of diminishing returns may have come for presidential Twitter on trade matters, an issue investors say is the biggest consensus tail risk for markets since the European sovereign debt crisis in July 2012.
“This is not to say that markets are not pricing trade risk or that trade tensions are not a concern,” wrote the Goldman strategists. “That said, our findings suggest that global markets are unlikely to price the rising risk of a trade war by checking Twitter.”
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Andrew Dunn, Randall Jensen
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