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President Trump’s Twitter feed – how it can influence the markets

  • JPMorgan analysts have outlined a new tool, developed to study the impact of presidential tweets on the financial markets
  • The president’s willingness to use Twitter to argue for a more dovish monetary policy has become a major influence on the bond markets
  • US-China trade talks have also been impacted by his preference for ‘policy by social media’
  • JPMorgan reports on the keywords and triggers to look out for

Analysts at JPMorgan have been sharing the results of a study they have run on the tweets of President Trump and the impact they have on the markets. The more detailed analysis of the @realDonaldTrump Twitter account stems from what turns out to be a well-founded feeling that his messages are literally moving the markets. Their findings are more than an interesting interrogation of modern media practices.

The year 2020 is of course an election year and 17th–18th September is the date of the next meeting of the Federal Open Market Committee. To put it another way, there is likely to be an increase rather than a decrease in the number of tweets.

The JPMorgan report offers some guidance intended to help its clients work out what is likely to make an impact. The account has 64.1 million followers. It’s known for sending messages around the clock even at times when most of the rest of the US would be sleeping. The name JPMorgan has created for the index is ‘Volfefe’ — the ‘Vol’ relating to volatility and ‘fefe’ to a particularly notorious middle of the night tweet sent by the president in 2017. It gained global coverage because of his use of the mysterious word ‘cofvefe’ in the body of the message which read “Despite the constant negative press covfefe”.

Source: Markets Insider

The JPMorgan analysts have found that tweets from the president’s account have significantly increased volatility. The report notes the frequency of market-moving tweets from Trump ‘ballooned’ in August of this year. A circular relationship is forming where the tweets bring about an effect, so are studied more closely, thus bringing about a greater effect and so on. Regardless of anyone’s personal views of the president’s policies, his ability to control the political narrative is something to behold.

The reporting of the JP project in the mainstream media should not give anyone the false impression that it is the first or only party to have such a project in place. You’d have strong reason to believe myriad other financial organisations have already developed such a program. Again, another circular relationship has built up as hedge funds pick out ‘indicators’ from within the ‘noise’ of the president’s account, and the patter becomes self-fulfilling.

 

US-China

The impact of the tweets became particularly noticeable in August as the US-China trade war escalated. His policy of using tweets to detail his vacillating policy has sown a degree of confusion, which appears to be pre-meditated. Nicholas Spiro was writing for ‘Macroscope’ in the South China Morning Press (SCMP) when he noted:

“Earlier this week, Trump candidly admitted that sowing confusion about the prospects for a deal with Beijing was ‘the way I negotiate’.”

Source: South China Morning Press

The Chinese administration doesn’t appear to be enjoying being part of a process that includes disingenuous negotiation by Twitter.

Source: Markets Insider

The extent to which this is down to cultural differences is up for question. Regardless of what corner of the globe they come from, nobody likes being played around. Spiro and the SCMP pull no punches when appraising the president’s approach:

“Trump’s incessant brinkmanship and contradictory statements have not only made an agreement with China less likely, his unreliability has convinced Beijing – and most investors, for that matter – that he is unlikely to honour any agreement as he gears up for re-election next year.”

Source: South China Morning Post

The fact that he’s considered unreliable does little to diminish Trump’s ability to sway the markets, a Spiro continues:

“The debilitating uncertainty stemming from the trade war has turbocharged a rally in global bond markets, helping push down the yield on the benchmark 10-year US Treasury bond to just below 1.5 per cent, a whisker above its all-time low in July 2016.”

Source: South China Morning Post

The JPMorgan body of work aims to spot market-moving tweets and track the results.

For investors and businesses, those tweets have consequences. JPMorgan states:

“The subject of these tweets has increasingly turned toward market-moving topics, most prominently trade and monetary policy… and we find strong evidence that tweets have increasingly moved US rates markets immediately after publication.”

Source: Newsweek

 

Triggers

The JPMorgan news release about its new analytical tool doesn’t reveal too much of the granular detail, which will hopefully be bringing value to its clients. What is shared is that trigger words include‘China’, ‘billion’ and “products.”It also notes that the president averages in excess of 10 tweets per day and that the subject matter has veered towards market-moving topics. The JPMorgan report goes on to say:

“We find strong evidence that tweets have increasingly moved U.S. rates markets immediately after publication.”

Source: Newsweek

Source: Markets Insider

The bank concedes that its model is “hardly a tweet savant”— but maintains that the results it produces are “firmly statistically significant”.(Source: CNN)

Below is an example of a tweet that can knock the markets. Just as the US-China trade war was reaching a particularly sensitive stage, President Trump tweeted:

Source: Twitter

The “thank you for your attention to this matter!” comment highlights how the president expects some form of action or consequence to follow. For investors, this can often see good trades turn bad, or vice versa – all from a message made up of no more than 280 characters.

 

Fed policies

Another audience that the president is keen to attract includes the members of the US Federal Reserve. Over the summer, the Fed has flipped from a hawkish to a dovish interest rate policy for the first time in over a decade.

US Fed Funds Rate:

Source: Trading Economics

 

Jerome Powell, chair of the FOMC Committee, cited uncertainty created by President Donald Trump's trade policies as a key factor:

“Through the course of the year, weak global growth, trade policy uncertainty and muted inflation have prompted the [Federal Open Market Committee] to adjust its assessment of the appropriate path of interest rates. The committee moved from expecting rate increases this year, to a patient stance about any changes, and then to today's action.”

Source: Newsweek

Appreciating the impact of tweets sent by the president might help investors navigate the market. One thing that is for certain is that the sender of the messages is all too aware of their effectiveness and looks very happy for that situation to continue.