Sep 27, 2019

Trump is hurting the market

Illustration: Sarah Grillo/Axios

The "tweet" button on President Trump's iPhone is moving markets and has become increasingly consequential for trillions of dollars of assets around the globe.

Why it matters: The markets don't trust Trump — nor his Treasury secretary, Steven Mnuchin — to be a calming influence in times of stress.

  • Quite the opposite: They now expect Trump to be an unsettling influence even when things are otherwise quiet. And they're worried that even the Fed is falling under Trump's spell.

What they're saying: A new paper from the National Bureau of Economic Research finds that whenever Trump tweets about interest rates, the market prices in a little bit more of a future rate cut.

Market participants believe that the Fed will succumb to the political pressure from the President.
— Francesco Bianchi, Howard Kung, and Thilo Kind, NBER

JP Morgan's Volfefe index demonstrates that Trump's tweets have also increased volatility in the futures market more broadly.

My thought bubble: The markets normally look to the U.S. Treasury secretary for reassurance during difficult times, but as WaPo's Tory Newmyer says, Mnuchin is "Trump's most loyal surrogate." When Mnuchin weighs in on issues like Trump's conversations with Ukrainian president Volodymyr Zelensky, that damages his credibility more broadly.

  • Trump's fiscal policy is also adding to market volatility. The Trump tax cuts have caused trillion-dollar deficits, which means the government has a huge and constant thirst for free cash. That in turn exacerbates liquidity shortages like the one we saw last week.

The bottom line: The stock market has done a pretty good job of shrugging off Trump's tweets, most of the time. But money markets — the places where businesses keep most of their cash — are much more important for a smooth-functioning economy than the stock market is. And they're showing increasing signs of concern.

Go deeper

Warren says big banks are crying wolf

Photo illustration: Drew Angerer/Getty Staff; Aïda Amer/Axios

The banking industry has argued in recent weeks that the problems in the systemically important repo market are the result of excessive regulations and could result in larger and more damaging liquidity events in the future.

Driving the news: Sen. Elizabeth Warren wrote to Treasury Secretary Steven Mnuchin on Tuesday to call foul and request an explanation of what's really going on in the market.

Go deeperArrowOct 23, 2019

The stock market is overreacting

Stocks took a nosedive for the 2nd consecutive day on Wednesday and the Dow and S&P fell for the 4th time in 5 sessions. But the U.S. Treasury market experienced a far smaller move, as it has been factoring in manufacturing weakness and slowing job growth for months.

Why it matters: The bond market's limited movement in the face of historically weak manufacturing and deteriorating employment data suggests the worst may be over, analysts say.

Go deeperArrowOct 3, 2019

Fed's Kashkari is sick of Wall Street's whining

Photo: John Lamparski/Getty Images

Minneapolis Fed President Neel Kashkari has had it with the "hubris and stupidity" of Wall Street bankers. "Honestly, my patience for these market opinions is basically gone," Kashkari told Axios in an exclusive interview.

Driving the news: His latest grievances are with investors who claim the Fed is being bullied by President Trump and traders pointing fingers at the central bank for the liquidity crunch in the repo market, which the Fed just announced a $60 billion a month standing facility to address.

Go deeperArrowOct 14, 2019