Why For Traders, "It's Still All About Trump"

By Mark Cudmore is a former FX trader who writes for Bloomberg

It's Still All About Trump

A visa decision affecting seven very small economies does not seem like a markets story but there are clear trading implications in this case. The first is that, no matter how much investors might wish otherwise, markets are still inextricably linked to the new U.S. president.

The Trump trades – long dollar and U.S. equities, short Treasuries -- received a boost Thursday as the president promised a “phenomenal” tax plan within weeks.

Not long after, Trump suffered a major setback in the appeals court on his immigration ban. The markets have ignored this decision for now, but they should reconsider.

The limitations on Trump’s ability to bully the system are being emphasized. This will embolden members of Congress to stand up to him if they don’t support his tax plan. And there appears to be many who don’t – even from his own party.

That puts further doubt on an already vague promise. No sign of details and no guidance on the timeline for implementation.

Trump’s immediate reaction to the legal decision -- “See you in court” – shows he is determined to fight this all the way up to the Supreme Court. This may distract him from the domestic economy.

The more positive spin is that he will now be even more motivated to deliver a larger success quickly on tax (or infrastructure) to compensate for his failure on immigration.

Another plus for markets: he’s walked back his rhetoric on the issue of Taiwan, making nice and endorsing the “One China” policy in his chat with Chinese President Xi. The backdown shows — perhaps — a greater grasp of international reality creeping into his game. It also goes some way to soothing concerns about an imminent trade war, on that issue anyway.

In the interim, Trump’s meeting with Abe will overshadow the short-term fate of the dollar, and versus the yen in particular. Abe is bringing a load of investment promises which Trump is sure to promote heavily. If he does, without mentioning currency manipulation, then USD/JPY can have a decent spike higher.

The point is, much as we might like to focus on other inputs, Trump is still deciding the direction for many key assets. Investors shouldn’t underestimate this effect – even from tangential topics like visa policy.