Article / 15 June 2017 at 12:43 GMT

'The Trump trade is off': Hardy

Senior Editor / Saxo Bank
Denmark
  • Anti-Trump investigation continues under Special Counsel Mueller
  • 'Trump trade' dead in the water as president fights continual allegations
  • Equities decline could see USD gain for liquidity reasons: Hardy

Donald Trump
Is institutional Washington more than Trump can handle? Photo: Shutterstock

By Michael McKenna

US equity futures declined in the wake of Wednesday reports stating that president Trump is now under investigation as part of what the Washington Post calls a “widening probe” into whether Trump tried to obstruct justice by firing former FBI head James Comey.

The announcement comes on the heels of Comey’s testimony, which many expected to produce evidence of impeachable offenses but which ultimately offered little more than a series of vague imputations and weird stories (remember when the two metre-plus tall Comey tried to hide in the curtains so the president wouldn’t see him?).

President Trump has already taken a swipe against the new probe in his trademark style, tweeting that:
 
"They made up a phony collusion with the Russians story, found zero proof, so now they go for obstruction of justice on the phony story. Nice."

The news, however, has pushed US equity futures lower in tandem with a less dovish than expected statement from the Federal Open Market Committee. After Trump’s election last November, the prospect of a pro-business Republican in the White House emboldened equity bulls and USD traders alike. This narrative – the now-infamous “Trump trade” – held that a combination of deregulation, tax cuts, and infrastructure spending, all pushed through by a GOP in control of the executive and legislative branches of the government.

All of those hopes, however, have largely been abandoned by investors even as US equity indices remain in sight of their all-time highs. Whatever emerges from the Special Counsel probe into Trump’s activities, it is by now obvious that the campaign to push Trump’s presidency into the weeds of suspicion is absolutely indefatigable; by all appearances, his presidency has triggered something very like an immune response in the US political, intelligence, and cultural classes, and it is doubtful whether Trump’s GOP – divided along populist/”establishment” lines – will ever act in concert to pass the traditional, pro-business suite of Republican policies.

“The Trump trade is off until further notice,” says Saxo Bank head of FX strategy John J Hardy; “it may well be off forever.”

(According to Hardy, the long-awaited trade was most dependent on infrastructure spending and corporate tax reform, with personal income tax reform as a potential lesser component.)

If stocks do fall, however, Hardy says that the USD could go up for liquidity reasons – “effectively, risk-off equals dollar gains,” he says – with the Fed a potential partner in this developing narrative.

Despite the Republicans’ control of the US government, however, Trump’s presidency remains fractious and imperilled as the erstwhile leader of the liberal international order attempts a bipartisan shaking loose of the stubborn populist interloper.

USD index, December 2016-now:
USD index

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Source: Saxo Bank 

Michael McKenna is an editor at Saxo Bank
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