The Republican spoilt the markets and their whims can cost a thing to Joe Biden
How will investors live without Donald Trump’s Twitter?
– May I count on your silence?
– Hardly ever. But you can rely on my talks.
Donald Trump’s connection with financial markets became so stable that Joe Biden will have to think well about how to destroy it. Investors got used to reacting to the US 45th president’s talks and took his Twitter as something more important than an economic calendar or Bloomberg’s news. Trump’s appeals to Saudi Arabia and Russia help to end the trading war between those two countries. Trump’s mood swings indicated an escalation or a de-escalation of the trade conflict between Washington and Beijing. His talks contrasted with the predecessors’ silence, and now the market is losing its favourite toy.
All that starts well ends badly. And what starts badly ends even worse. The S&P 500‘s 7.7% rally following the three post-election weeks has become one of the best in the past 90 years. It means financial markets like Biden. That’s not the problem, though. The problem is, financial markets can make the Democrat behave in a way he doesn’t like. Whatever the occasion, Trump would encourage the US stock indexes, and they became so spoilt that they got out of touch with reality. Such discrepancies between markets and the real economy are a rare thing.
– Jerome, do you think there’s food in this forest?
– Yes, there is. It’s us, Christine.
Spoilt children often play up and make their parents satisfy their whims. Financial markets were doing the same. At the end of 2018, they didn’t appreciate Powell’s statement that the federal funds rate was far from neutral because it implied that monetary policy’s normalization could continue. The S&P 500 collapsed, Donald Trump raged at Powell, and the Fed had to correct its rhetoric. So, anyone can fall victim to the market’s anger.
The US stock indexes’ whims affected Europe’s marketplace too. At one of her first press conferences as the ECB’s President, Christine Lagarde said the ECB wasn’t responsible for controlling bond yield spreads. Then she had to apologize shortly afterwards as the bond market’s reaction was too severe.
Donald Trump’s excessive love turned the market into a spoilt child, and it would be hard to reform that. Although it’s not Joe Biden’s immediate task, he will have to make an effort not to follow investors’ mood.
The Republican didn’t manage to make America great again and now has to return to his “ordinary billionaire” status, but he left his mark in history for sure. True, the financial markets love his substitute, but all that starts well not always ends well. Let’s wait and see.
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