The Trump Effect

Aggressively targeting people, companies and even entire nations via Twitter may be a controversial method of communication for a president, but that hasn’t seemed to faze Donald Trump. In what has been nothing less than a turbulent few months since his election, the President has escalated his war on the media, faced worldwide protests, imposed a travel ban in the United States and had a lawsuit against him, just to name a few.

However, as the world settles into the daily routine of Trump’s presidency, just what financial impact have his actions and opinions had so far, and what could they possibly do in the future?

Currency Manipulation

Back in 2010, Brazil’s then finance minister, Guido Mantega, announced the first warnings of a “currency war”. It was no secret that Europe, the US and the UK were all attempting to boost their post-2008 recoveries through lower interest rates and depreciating currencies. However, since then little has been publicly made of these measures from world leaders. That is until Trump and his administration came along, riling against the likes of Japan and China, accusing them of currency manipulation. In a meeting, Trump said in his typically muted and understated style:

“Every other country lives on devaluation…You look at what China’s doing, you look at what Japan has done over the years. They…play the money market, they play the devaluation market and we sit there like a bunch of dummies.”

Since the claims were made earlier this month, Japanese Prime Minister Shinzo Abe has said that he believes Trump shares his view that the country’s monetary policy is aimed at ending deflation rather than for manipulation purposes. Whether this is actually the case remains to be seen. What is clear, is that Trump wants to ensure America (and perhaps himself) are not seen as mugs and is going out of his way to do so.

Elsewhere, the President’s economic advisor was also quick to add 'guilty' names into the mix, telling the Financial Times that Germany’s trade surplus is a sure sign that the Euro is “grossly undervalued.”

Regardless of the realities, at a time where the US is attempting to improve its trade balance, Trump and his team must consider whether fighting against currency manipulation with the likes of China is really going to be a beneficial strategy?

Ready, Aim, Tweet

Whilst not being the first US president to make use of Twitter, Donald Trump is certainly not sticking to tradition when it comes to the topics and tone of his Tweets. His infamous account, which is currently followed by over 25 million people, is being used on a regular basis each day to highlight (or vent) his thoughts, fears and reactions to domestic and global 'news'. But what effect are these statements having?

Earlier this month, President Trump tweeted about two companies – one praising Intel, another knocking Nordstrom. That day, Intel’s shares ended flat, while Nordstrom’s climbed more than 4% - the firm’s best and most-traded day of the year so far. Boeing and Lockheed Martin have also experienced the wrath of President Trump; both criticised over their “out of control” costs in December. Boeing has rallied around 8% since then; Lockheed Martin has fallen 0.5%.

Such gains and losses, analysts are quick to point out, are generally short-lived. However, there is no doubt that Trump's Tweets clearly have significant financial implications on the organisations featured in them, if only for the short term. Only time will give us the opportunity to establish whether there is a clear pattern to the longer term performance of companies featuring in a Tweet from the President.

Financial Markets

Rather surprisingly, stock markets have been fairly welcoming to the new president since his election back in November. While history suggests that markets make gains during the first 100 days of office (averaging 1.6%), this has typically been more of a characteristic for Democrats rather than Republicans. In true Trump style, the president is continuing to break with tradition, as optimism grows amongst investors, consumers and businesses. It was even described as “frankly astonishing” by the Bank of Montral’s chief economist, Doug Porter.

Furthermore, many investors are thought to have “fully bought into Trump’s promise to ‘make America great again’”, according to Keith Wade, chief economist at Schroders. This follows growth in the S&P 500 index, which saw a rise of 6% between election and inauguration day – the highest rate seen during a president’s first-term win since John F. Kennedy in 1960.

Worldwide, however, Donald Trump’s decisions have, at times, had adverse effects on the markets. After invoking his controversial travel ban, the FTSE 100 slumped to a one-month low in intraday trading, as concerns were raised over the impact on trade and the economy. At the same time, the Dow Jones also extended its losses, after dropping below the 20,000 mark, just days after it hit record highs.

These indexes have since recovered and global stocks have reacted positively to so-called ‘Trump Trade’, spurred by the president’s pledge to roll back regulation and reform taxes, in an attempt to boost growth and jobs. Ben Broadbent, deputy governor for monetary policy at the Bank of England, told the BBC that these plans could benefit the UK.

“You’ve seen business confidence rise, particularly in the US, you’ve seen financial markets get more optimistic, and I think that has had some impact on us.”

UK Relationship

Predicting the effect Trump’s presidency will have on the UK is a difficult one. Of course, the best case scenario would be to negotiate a free trade agreement with the US, which last year imported over $54m worth of goods from Britain. If this were to continue and grow, the future for UK manufacturing and logistics could be a bright one. If proposed US tax cuts and increased infrastructure spending go ahead, the country could experience growth and a stronger dollar, which in turn could provide a positive spill over for UK exporters. It’s worth noting, however, that these effects will depend on how far the president is willing to go with his protectionist rhetoric surrounding US-based manufacturing.

While the world is coming to realise that the US president is a rather unorthodox political character, it is too early to predict what the full impact of his policies will be. There is a lot we are yet to see, including plans for fiscal policy, government spending and taxes, so only time will tell.

What can be guaranteed is that it will be an interesting term!

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