The President of the United States of America needn’t exercise all of his 280-character quota (including spaces) to upset financial markets. In fact deploying the full arsenal of a tweet might be too crass for the reserved and presidential billionaire. However, his contentious Twitter account “@realDonaldTrump” moves interest rate; currency and equity markets all to often. In times when the early hour musings of the president can send a currency, it’s stocks and related interest rate instruments tumbling you want to do something to get on top of it.
Remember that ill-fated tweet by the President containing the word “covfefe?!”. Still don’t have a clue what he meant? Well, in the absence of clarification or explanation you’re not the only one. As one of the more iconic and less market shaking tweets since he took office, the made up word now forms the basis of a new J.P. Morgan Instrument to measure and track the volatility in (fixed income) markets in reaction to #DJTrump. The study finds that Trump’s tweet regarding the enduring strength of the US Dollar has the strongest effect upon currency markets, trigging a defensive bid for the Japanese Yen and demand for perhaps its greatest substitute, the Euro.
A shaky day in British Politics led to a sharp 1.2 cent gain in the value of one Pound Sterling in US Dollar terms. At market open, the reaction to persistent GBP strength last week saw the value of the Pound track unconvincingly downwards as Europe settled following the weekend. Despite limited successes at a meeting in Dublin with Irish Prime Minister, Leo Varadkar, GBP trudged higher. UK PM Johnson’s counterpart and tricky member of the European Council kept hopes of a breakthrough in Brexit negotiations suppressed. The heated meeting comprised of exchanges over the possibility of direct rule by the UK government and Parliament over Northern Ireland.
A leaked memo increased tensions regarding the Norther Irish Border problem because it suggested political immobility in Northern Ireland would mean Britain would have to take back control of devolved powers. Stormont has been suspended for more than two years leaving the administrative body incapable of making the rapid and salient issues that would necessarily arise from a hard Brexit.
With the bill aimed at preventing a no-deal exit having gained royal ascent yesterday afternoon, Sterling rose higher. It was perceived as impossible that the bill would fail following the ratification of the House of Lords last week and Sterling’s powerful rise yesterday was likely a reflection of stronger risk sentiment as opposed to political resolve. USDJPY rallied to claim a healthy 107 handle as defensive holdings of the safehaven Japanese Yen were unwound. The UK Parliament is now officially suspended until October 14th, three days ahead of a pivotal EU summit and less than three weeks from the date that Number 10 still claims will be the do or die Brexit day.
Discussion and Analysis by Charles Porter