When the President tested positive for Coronavirus markets struggled to price in the potential ramifications. Volatility rose and price signals were far from smooth with the US Dollar eventually rising in a safe-haven bid. The market significance of the President’s hospitalisation is exacerbated by the looming presidential election and any potential change in the polls. Trump claims he’s now had a lesson on Coronavirus from, “the real school – this isn’t the let’s read the books school – and I get it and I understand it”. Now back in the White House, let’s hope Trump’s promise to teach us about the novel coronavirus isn’t the prelude to Trump University II, or a new novel, Trump: the art of the Heal.
When the President was hospitalised expectations for the forthcoming election changed. The probability of Trump winning a second term diminished with the campaign of Joe Biden and Trump’s running mate Mike Pence picking up the scraps. The incumbent logic is that Trump’s policies of deregulation and tax breaks are US Dollar supportive. His unique approach to Twitter-backed foreign policy has also been seen to encourage a safe-haven bid towards the US Dollar in the face of protectionism. This logic is upheld despite Trump’s persistent call for a weaker Dollar and condemnation of the Federal Reserve’s policies. Therefore if the probability of having Trump in the White House for a second term continues to be subdued then political forces should contribute to the US Dollar’s vulnerability.
We have not seen the political dynamics created by Trump’s hospitalisation feed into the Dollar spot price just yet. Due to the political uncertainty generated by the hospitalisation of the President the immediate recoil in equity markets sparked a risk-off tone that encouraged defensive demand into the greenback. News of Trump’s seemingly swift recovery prompted a reversal of the crisis mode valuations produced on Friday with the Dollar losing ground during yesterday’s trade. Despite his return, concerns surrounding the President’s health still abound following a weekend of mixed signals and misleading statements.
The other potential spill over from Trump’s infection was whether his view and subsequent policy path on the virus would be changed by his contraction of it. If his experience had prompted a U-turn on his more laissez-faire policy and drive to open up the States the impact for the US economy could have been significant. Trump doesn’t appear to have been phased about his run in with the virus and we should therefore expect business as usual from the President in the final days of this administration.
Discussion and Analysis by Charles Porter