TACO
Despite the movement in MXN yesterday following a downgrade of growth forecasts from the central bank, this briefing does not concern Mexico. Nor for that matter does it concern the Taco as a food item at all. Instead, ‘TACO’ is set to join the hall of fame for Wall Street acronyms. It stands for ‘Trump always chickens out’. According to the press, this has become a common place trade idea amongst investors. It summarises the notion that the President, at least in his second term to date, backs down from the precipice he creates, usually regarding trade or foreign policy.
But don’t be mistaken for thinking this phrase or indeed this briefing is a dig at the President. A journalist yesterday pointed this out to President Trump, asking for his response to Wall Street’s latest acronym to explain the market’s net positive reaction to Trump’s yoyo-ing tariffs. Trump, whilst clearly offended and caught off guard, and having duly chastised the reporter, offered an interesting, unscripted and raw analysis of why this was wrong. The President defended the initial imposition of tariffs as brave and a necessary step to bring a foreign nation to the negotiating table. The President framed an initial shock tariff at a ‘ridiculous high number’ as necessary to then achieve a deal at a reasonable level.
What markets can read from that is that the conclusion of their TACO trade is right. Sure, the President disagrees, perhaps rightly, with the ‘Chicken’ element. Instead, perhaps to appease the President the markets might switch to the acronym ‘TAN’ – Trump always negotiates. No, Mr President, that’s not a reference to your skin tone (but equally, reader, no, it didn’t slip my mind in my delusions of grandeur thinking I may have coined the markets latest buzz word). Regardless of the acronym, the message remains the same, Trump’s trade war is political economic brinkmanship and initial tariff shocks should be expected to be unwound in due course. Yes, shock tariffs create transitory risks that are expressed in asset prices, but ultimately these shocks are designed to bring forward a more reasonable deal. President Trump seems to have confirmed Wall Street’s bias that tariffs aren’t built to last, he just doesn’t see it as chickening out. USD is unsurprisingly much stronger as a result.
Discussion and Analysis by Charles Porter
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