It appears that Wall Street's nearly 3 month honeymoon with Trump is ending. Because no matter how much the courts or public pressure force the watering down of Trump’s immigration order, Bloomberg's Mark Cudmore warns that "the long-term damage to Brand USA has been done."
Here is why "trader #1" is angry:
With a few hasty pen scratches, Trump has confirmed that he is impulsive and liable to act without concern for convention or precedent or, it seems, the law. At the margin, the premium for U.S. assets will now be eroded.
The U.S.’s place at the centre of global financial markets is partially based on the perception that the country generally acts in the logical long-term interests of business and capitalism. The rule of law is strong and you can have faith that your rights will not be unjustly or arbitrarily curtailed.
Trump actions — his willingness to trample the rights of selected classes of people — shatter those well-established assumptions. The consequences may be slow to play out but are manifold. The attraction of the U.S. as a base for wealthy individuals, multinationals and skilled workers has just been marred. A new risk has been introduced.
The message is that, if you choose the U.S., your life could be disrupted at a moment’s notice.
It’s not like this is just one erroneous measure that can be chalked off as an exceptional mistake by Trump. Instead, it’s the icing on the cake of his administration’s first week in power, where it was abundantly clear that protectionism and isolationism are the priority.
Last week, I used the phrase “irrational stubbornness” to describe the market’s determination to buy the dollar in the face of both contrary newsflow and price action. Stubbornness is not a trait that’s closely correlated with profits in markets.
Expect U.S. equities and the dollar to suffer. The framework has shifted negatively, not just in the short-term but long-term as well.
Put another way, at some point policy uncertainty leaks into actual uncertainty and requires pricing in...
And as Bloomberg's Richard Breslow - or angry trader #2 - adds, "Trump’s certainly not making it easier for investors to stay comfortable with their positions. The legal and moral issues aside, what was the first thing you thought of when you saw the weekend news from the White House? When does my FX salesman get into the office?"
It’s hard not to at least call and make sure there are indeed bids out there. But a pattern of going home with your trend trades on, waiting nervously to see if there’s going to be any weekend firestorm, selling into a low-ball bid Sunday and being forced to pay up for those same assets as the week progresses is a tough scenario for making money.
Especially if you are model-based and haven’t figured out how to program moral outrage as one of the inputs.
If the game changes on you, it requires a change in strategy. For your sanity as well as P/L. So what is likely to emerge? The reverse of what we saw at the height of the European leg of the financial crisis.
Back then it seemed there was an emergency EU summit every weekend. Traders got into the habit of selling risk all week, the news was bad after all. Then on Friday buying some back in case there was that promised news that would save the day. And on Monday putting the risk back out, hopefully on some headline bounce. For a long time it looked like there was indeed faith in the system because weeks seemed to end better than they started.
Now, with risk generally bid, traders may realize that you buy risk during the week, the global numbers are getting better, and then lighten up on Friday. Let him sow some mayhem on Saturday, you’ll be there with your own low-ball bid sometime Monday or Tuesday. Friday weakness that leaves a soured-tone heading home, giving way to trends sneaking back into formation by hump day.
It seems Trump's grace period on Wall Street is finally coming to an end.