In a shock to absolutely no one, former President Donald Trump soothed harried investor nerves this week. He announced that he’s got “no intention of firing” the head of the Fed, Jerome Powell. True to form, he presented the announcement in his trademark provocative style to an eager room full of journalists. Investors, who have been rattled by the seesawing trade war and broader market volatility, got what they needed – relief – and investors rejoiced. Trump’s remarks not only stabilized the dollar but shifted the market’s perception of ongoing trade negotiations with China.
Trump’s measured tone represented a significant deviation from his previous confrontational rhetoric. As he addressed the media, he clarified that his relationship with Beijing was steady, emphasizing that he was “doing fine” without resorting to “hardball negotiation.” This surprising diplomatic overture suggests a possible thaw in U.S.-China bilateral trade relations. It may mean that the important ongoing tariff war will soon come to an end.
A Surprising Shift in Tone
Trump’s comments calmed traders’ nerves. They had become more and more concerned about the political blowback this would bring from the administration’s own threats to fire Powell previously. Speaking candidly, Trump dismissed speculations regarding Powell’s job security, stating clearly:
“No, I have no plans to fire Powell.” – Donald Trump
This unequivocal declaration stood in stark opposition to his previous statements. Those previous comments had sparked concern and even panic among market actors. Although this wasn’t in the former president’s comfort zone, he was uncharacteristically cool under pressure during the press conference. This shift was music to the ears of financial markets.
Right after his comments, the dollar got a new bid, as investors are optimistic again. Just as many analysts noted at the time, Trump’s pronouncement effectively killed off the reflation trade. That odds shift, totally contrary to expectation, provided a huge lift to risk assets. The markets took the cue, a signal that investors were willing to accept a much calmer, more stable economic backdrop.
Implications for Asian Markets
Trump’s comments were enough to be interpreted as a green light for Asian markets, letting them open on much firmer footing. On Saturday, the former president even suggested that a thaw in U.S.-China trade relations might come next. This ongoing challenge has been a key pain point for international investors.
Traders took the first signs that Trump is ratcheting back his rhetoric as a sign that this war of tariffs against China is likely approaching its sell-by-date. This prudent view was widely received by Asian investors who sought greater security in a region devastated by Trump Era trade war. Better relations with China would kick off a new Asian economic miracle. This change would go a long way toward allaying fears about long-term turmoil in the area.
Moreover, Trump’s comments provided reassurance to shareholders who had been concerned about brand damage due to Tesla CEO Elon Musk’s controversial statements and actions. The stability provided by Trump’s latest announcement comes as a welcome salve to what has been sharp, negative sentiment toward the company.
The Power of Communication
Trump’s prowess at moving market fundamentals through the magic of verbal communication demonstrates that in financial markets, talk is indeed cheap. His abrupt shift in tone was all the more jarring, then, because it made clear how profoundly words can affect investor confidence and market behavior. Trump was a bit more restrained, quieting concern about Powell’s job security. This move surprised no one more than Beijing and quickly sparked heated debate over the state of U.S.-China trade relations.
He claimed the media misrepresented what he was trying to do with Powell. First, he claimed repeatedly that no one ever intended to fire the Fed Chair. He proposed the monetary authority must “do a little more proactive at the center” via their monetary policy.
One result of Trump’s nudge would be to highlight his continuing eagerness to game the economic news. He wanted to project strength, but he needed the optics of diplomacy. Market analysts will be watching with great interest to see how this new tone affects future Fed decisions. Equally important to them is its potential impact on larger economic plans.