Trader To Trump: “You’ve Got One More Chance To Deliver”

I’ve said it before and I’ll say it again. It’s all about the narrative. The reflation narrative, that is.

That’s what’s gotten us this far in terms of the repricing of rates, the jump in the dollar (YTD meandering notwithstanding), and record high stocks.

But that narrative is being tested everyday as traders and investors are looking for the Trump administration to prove they’re serious about tax reform and fiscal stimulus.

Essentially, the market’s question for Trump is this: did you mean what you said about growth-friendly policies to “make America great again,” or was this really all about duping us into voting for you so you could implement Steve Bannon’s social agenda?

Well this will be tested next week and at least on FX trader thinks Trump has one chance left not to f*ck things up. Put simply: with the near record short in Treasurys still on, the new President had better not disappoint or it’s adios muchachos for the reflation trade.

Here’s more from Bloomberg’s Mark Cudmore.

Via Bloomberg

Trump needs to deliver next Tuesday or markets will throw a tantrum.

• I don’t remember a presidential speech to congress ever carrying such event risk for markets as Trump’s address next Tuesday. Mainly because it’s not normal for there to be so little clarity about what will be said

• Betting on Trump stimulus has been a tired theme for weeks. The excess exuberance has disappeared but the majority of analysts and investors don’t appear to have surrendered yet

• There’s now a genuine two-way risk. If he delivers some clear practical details of a tax plan, with a concrete and near-term schedule, then expect all that pre-Christmas enthusiasm to return

• Given Trump’s track record, we can expect bold promises which will provide some exciting headlines —- so the short- term risk may be skewed toward an optimistic interpretation

• Will that then provide the moment of ultimate capitulation for Trump trades? That’s certainly the risk if those headline promises aren’t backed up by the substance of a viable and detailed plan

• Speculative short positioning in Treasuries remains near a record -— the potential short-squeeze would see 10-year yields break back down through 2.3%, triggering a clean-out of some structural real money positions and a collapse in the dollar

• And the damage would spill-over into equities this time. The new administration would be further undermined, policy uncertainty would increase and investment would slow

• Markets may continue to chop around until Tuesday, and there’s absolutely a possibility that this time Trump will deliver. But, for many in markets, this will be the last time they’ll let him get away with disappointing