In his much anticipated address to Congress that was widely described as "presidential" avoiding attacks on the media and Democrat opponents, even if once again thin on detail, President Donald Trump reaffirmed his pledge on infrastructure, defense spending and tax overhaul, in broad brush strokes, and judging by the surging futures and US Dollar this morning, investors are giving him the benefit of the doubt for now.
Among the more notable economic highlight, Trump flagged plans for $1 trillion in infrastructure investment, and repeated earlier comments on trade and corporate tax reform without giving details. After the speech, the dollar extended gains as investors refocus on comments by Fed officials, which have spurred market expectations for a possible interest rate increase as soon as this month with March rate hike odds soaring yesterday.
Before we breakdown Wall Street's take of Trump's speech, here is a list of the 12 key things that mattered in Trump's speech courtesy of Axios:
A rundown of what to note from Trump's first address to a joint session of Congress.
- Tone: The speech was, by some distance, his most "presidential" since running for the office. He was totally on message, controlled, uncaffeinated, un-Trumpian.
- Breaking the ice: Trump began his speech with riffs on Black History, civil rights, and a condemnation of anti-Semitic violence. He received standing ovations.
- Head fake on immigration: As we reported, there was no way Trump was going to have a conversion to Jeb Bush-style immigration reform. He spent much of the speech highlighting the crimes committed by immigrants in the country illegally, and he gave no concessions on immigration
- Declined to endorse the border adjustment tax: "We must create a level playing field for American companies and workers. Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes -- but when foreign companies ship their products into America, we charge them almost nothing."
- More detail on healthcare: Trump gave Speaker Paul Ryan a big win by listing some components of the House GOP plan — and, as we forecast, the big one was tax credits. See David Nather's analysis.
- Says his budget will increase funding for veterans. A well-received line: "Our veterans have delivered for this Nation –- and now we must deliver for them."
- Crucial language on infrastructure: "To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital –- creating millions of new jobs." The key phrase — "that produces" — coupled with the mention of private capital — means the Bernie Sanders dream of $1 trillion in new government spending remains a fantasy.
Sought to tie the African-American experience to nationalism: "We've financed and built one global project after another, but ignored the fates of our children in the inner cities of Chicago, Baltimore, Detroit -- and so many other places throughout our land."
- Promises: Listed pledges made and kept. He gave plenty of applause lines for (at least some) Democrats, including withdrawal from the Trans-Pacific Partnership trade deal and his request that "new American pipelines be made with American steel."
- "Radical Islamic Terrorism": Trump is still using the phrase, despite the reported disapproval of his new national security advisor.
- NATO: Trump made a happy man of Defense Secretary Mattis and the rest of the foreign policy establishment, which has worried about his previous comments that NATO is "obsolete." Tonight, Trump said: "We strongly support NATO, an alliance forged through the bonds of two World Wars that dethroned fascism, and a Cold War that defeated communism. But our partners must meet their financial obligations."
- A emotional moment — and the longest applause of the night: "We are blessed to be joined tonight by Carryn Owens, the widow of a U.S. Navy Special Operator, Senior Chief William "Ryan" Owens. Ryan died as he lived: a warrior, and a hero –- battling against terrorism and securing our Nation."
And here are select excerpts from Wall Street analysts giving their first impressions of the Trump address:
TD Securities (Priya Misra)
- Speech was risk positive and reiterated pro-growth policy
- Market has given administration benefit of doubt and could continue for a little longer
- Equities may look “vulnerable” if markets don’t get details and progress on tax reform
Matsui Securities (Tomoichiro Kubota)
- Drug prices comment negative, though not particularly surprising
- Investors may switch even more to equities from bonds if Trump’s policies are put into practice
BDO Unibank (Jonathan Ravelas)
- Speech “very general, disappointing investors looking for specifics”
- Uncertainty continues as potential reforms are still work in progress
- U.S. and global markets are in limbo and will stay in consolidation in short term, given lack of reform details
- Next focus will be Fed
Rivkin Securities (William O’Loughlin)
- Trump’s speech was “enough to keep the optimism alive”
- Investors are now “just expecting that sometime in the near future he will give specifics”
Societe Generale (Kyosuke Suzuki, head of FX & money-market sales)
- Positions largely squared ahead of this event and in absence of any negative comments from Trump, USD is underpinned for now by expectations for a Fed rate hike this month
- With timeline for tax and budget already known, and markets having little expectations for any details to come out of Trump’s speech, focus is turning to a slew of monetary, budget and currency events in mid-March
Scotiabank (Qi Gao, FX strategist )
- “Dollar retreated somewhat during Trump’s speech, partly due to profit-taking. His speech hasn’t spurred another wave of Trumpflation trade. He repeated what he said before. We are awaiting Yellen’s speech due at 2am HKT on Saturday.”
National Australia Bank (Julian Wee, senior market strategist)
- Speech contains little that’s new and “what might be more pertinent for EM Asian FX is the presence of an overt protectionist tone, which would be supportive of USD/Asia”
- Still, the lack of details on many of his plans and how they will be funded will dominate market sentiment
- “Chances are this delicate balance between the two factors could remain for the near future given almost no mention has been made of how all this spending will be funded, leading to the USD/Asia remaining relatively directionless”
Mizuho Bank (Vishnu Varathan, economist)
- Emphasis on immigration, with skew toward skilled immigration, suggests wage pressures will be reinforced
- “All else being equal, this should be bearish for bonds and bullish for the dollar. Yet the ‘fair trade’ stance could suggest that too much dollar strength will face criticisms so there’s a rather twitchy path for dollar bulls”
- Dollar upside will be susceptible to spurts of reversals; long dollar bets will be fraught with fears of jawboning and EM currencies could be knocked back for now
- Cost-reduction emphasis also sets up yields and the dollar for two-way swings
Oanda Corp (Jeffrey Halley)
- Speech that was high on rhetoric and low on detail has been mostly built into the USD price already and bulls may be slightly disappointed
- “I would expect a ‘no news is good news response’ in EMFX today with most regionals to stay gently bid against the USD. Key now will be Yellen’s speech Friday and if hawkish, will see the March FOMC meeting unexpectedly ‘live’ ”