One of the more surprising effects of the election of Donald Trump as president of the US – and there is, let’s be honest, plenty of competition – was the degree to which his victory seemed to be welcomed by the financial trading markets. Although markets are viewed as being politically neutral to a degree, the shock with which Trump’s victory was greeted in more or less all political circles led to an assumption that the financial markets would be as shocked as anyone else.
The truth of the matter, however, was that the markets were responding positively to the prospect of a stimulus package being pushed through by a Trump dominated Congress. Whether the mixture of huge tax cuts, low regulation and infrastructure spending funded by private money would have a beneficial effect on the many millions of poorer Americans who voted for Trump is more or less completely beside the point. The fact of the matter is that the financial markets clearly expected Trump to deliver on his policies and thus boost growth.
Moving forward
That, of course, was back in January. The current relative weakness of the dollar against a basket of other currencies (although not the pound, which is suffering its own Brexit inspired slump) has been caused by a market judgement that the Trump White House seems to be more or less incapable of pushing through its chosen agenda.
The latest event to trigger this perception was the collapse of the Republican Party’s attempts to push through their much talked about healthcare overhaul bill. The strength of the market response to this collapse, which saw the dollar hit a 10 month low point, wasn’t an indication that the continuation of Obamacare was felt to represent a potent threat to economic growth, however. What the markets were doing – and it is this which makes predicting future market behaviour so difficult – was reacting to the symbolism of the event. Throughout the Trump campaign and during the early days of the presidency, the repeal of Obamacare was held up as being a totemic Republican policy, not least, perhaps, because the US health care system actually has the word ‘Obama’ in its name.
That wall…
The promises to build a wall along the Mexican border and throw Hilary Clinton in jail may have been more eye-catching, but most sensible observers accepted that they represented rhetoric more than concrete ambition. The health care bill, on the other hand, was the kind of policy which a president presiding over a party with control of both houses of Congress could be expected to deliver. The fact that Trump has been unable to do so has cast doubt on his ability to see through his wider economic policy, and it’s this doubt which the markets have responded to.
It’s not just about health care, of course. The continuing uncertainty over what might be termed ‘the Russian question’ – i.e. whether and to what degree the Russian government interfered in the US election – has begun to colour all perceptions of the Trump presidency. His staunch supporters, of which there are still many, may cling stubbornly to the belief that the Russian story is just so much ‘fake news’, but less partisan observers are still, post the release of Donald Trump Jr’s emails, awaiting the emergence of a definitive ‘smoking gun’. Unless this happens or, as unlikely as it seems, events around the Trump presidency begin to calm down, it seems we can look forward to more market fluctuations as the currency dealers attempt to decide how much of the president’s programme will ever be delivered.
