Last week, former FX trader, Bloomberg contributor, and self described “perma-bull” Mark Cudmore dared to utter a phrase that the eternally optimistic are never supposed to utter: “I’m worried.”
At the heart of Cudmore’s concerns was rampant complacency in the face of mounting political risk. “Equity investors seem to be in denial of the threat to the global economy from Trump’s proposed protectionist policies,” he wrote.
Well, four days and a few executive orders later and we’re seeing the chaos we should have seen weeks – no, months – ago.
Americans have seemingly woken up to the fact that Trump fully intends to keep his most outrageous campaign promises and, I would argue more importantly, it’s becoming increasingly clear that the agenda here is being dictated by Steve Bannon.
Meanwhile, markets seem to have finally woken up as well, with stocks falling more than 1% in early trading and the VIX spiking.
Here with an exceedingly dire assessment of the effect Trump’s executive orders will have on markets is the aforementioned Mark Cudmore.
Via Bloomberg’s Mark Cudmore
No matter how much the courts or public pressure force the watering down of Trump’s immigration order, the long-term damage to Brand USA has been done.
- 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
- NOTE: Mark Cudmore is a former FX trader who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice