The fundamental question For investors is: Did President Trump give in tariff and the Federal Reserve because now the markets have the pan -fed by the handle? Is it because you have any Great hidden plan After chaos? Or did you simply talk to someone else?
To be clear: I don’t know. I can not see any great plan that explains the sudden policy changes, but both the market guards and the experts in the Kremlin, whose advisors have access to the oval office any day, seem to offer plausible explanations.
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Enrique Díaz-Alvarez
On Tuesday and Wednesday, the markets became Very positivewith increases from the shares and the dollar, and declines of the yields of the treasury and gold bonds. The fall of US assets stopped after Trump said he would not fire the president of the Federal Reserve, Jerome Powell, and that The Wall Street Journal report that China tariffs could be reduced by half. In summary: Trump gave in, at least for now.
It is easy to argue that Trump changed his mind Due to market reactionthus repeating his change of position two weeks ago, when he delayed his so -called reciprocal tariffs after signs of serious problems in financial markets appear. This time, the dollar reached its lowest level in three years despite the strong increases in bond yields, while gold beat new maximums. Markets did not like what Trump said about the Fed and what he did with the tariffs, Trump no longer liked how they reacted. For investors, this interpretation is reassuring, since it gives a limit to the most stupid ideas, similar to the reaction of the “bond guards” that expelled Liz Truss from her position as British Prime minister faster than she takes a lettuce in rot.
The dollar reached its lowest level in three years despite the strong increases in bond yields
-THE POWER OF THE MARKETS It is not magical. Asset prices are simply the assessment that many people make of the economy’s prospects and future yields, and their conclusion that neither 145 % tariffs on China nor Trump’s interference in the setting of interest rates agree. Markets are a live and direct opinion survey about money. In that sense, they are important for Trump. However, There is no guarantee to be guided by them. Sometimes, doing the best for the country can be bad for shares (tax increases), bad for bonds (tax cuts) or bad for the dollar (type cuts or a war, for example).
Nevertheless, The combination of the three is different. The only policy that occurs to me that could be, at least in theory, good for the country, but bad for shares, bonds and dollar at the same time, it would be a new pandemic confinement (please, no!) And, even in that case, fiscal and monetary support should be an important compensation. The triple fall usually means that a capital escape is taking place, something that should not cheer on any government. Great Britain experienced it in 1976, an infamous year in which actions, bonds and sterling pound fell until the new prime minister resorted to the International Monetary Fund to stop a fiscal crisis. Countries that ignore capital escape end isolated and impoverished, such as Venezuela or Zimbabue. The United States is far from this type of catastrophe, but I hope that the markets have imposed Some limits to what Trump is willing to do. That is good for investors, but it entails three major provisions.
OpinionFirst, we must not assume that Trump has put a minimum at prices: The minimum of the S&P 500 earlier this month, from 4,835, was not the key, nor was the ICE US index below 100, not even the performance of the treasure bonds at 30 years, which approached 5 %. If it was the markets that forced the change of course, it was probably the signs of capital escape – that is, the simultaneous losses – and not some type of “Trump put” in the actions or the sensitivity to a concrete performance of bonds.
Secondly, this demonstrates The risk Trump is willing to assume before backing off. It should be obvious that attacking the independence of the Federal Reserve would harm the markets, but did it anyway. It should be obvious that imposing 145 % tariffs on your largest provider of goods would harm the markets, but did it equally. If prices have to fall long before they leave their next detrimental plan for the market, it would mean insufficient comfort for investors during the fall. Third, all this is based on the assumption that Trump has reversed due to markets, and we cannot be sure that it is true. Trump could talk to a different advisor next time. EITHER I could be improvising on the march. Investors should not trust their alleged influence on the president.
*License content de The Wall Street Journal. Translated by Federico Caraballo
