Monday, 16 September, 2019

How much do Trump tweets swing the market? Check "Volfefe"

JPMorgan Launches 'Volfefe Index' to Track how Donald Trump's Tweets Impact Markets Trump tweets increasingly moving markets: report
Russell Knight | 10 September, 2019, 12:01

The Volfefe Index specifically tries to analyze the impact of Trump's tweets on the bond market and interest rates.

The JP Morgan report showed that Trump - or aides - have tweeted over 10,000 times from his account since his inauguration, with an uptick in the previous year, becoming even more intense during the last few months.

"Trade and monetary policy have become an increasing focus for the executive branch, and everything from casual sentiments to seemingly formal policy intentions have been disseminated, globally and instantaneously, via this carefully scrutinized social media platform", JPMorgan analysts led by Josh Younger and Munier Salem wrote.

The president has produced more than 10,000 tweets since taking office, and the count of market-moving missives has increased in recent weeks, averaging more than 20 tweets and retweets per day, up from five in early 2017, the JPMorgan Chase analysts found.

The name derives from the finance term volatility and "covfefe", a typo Trump notoriously tweeted in 2017 when attempting to discuss negative media coverage.

"I'm going to give out my financial condition and you'll be extremely shocked that the numbers are many, many times what you think", Trump said.

It is no secret that US President Donald Trump's prolific use of Twitter over the past couple of years has created massive volatility on financial markets.

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President Donald Trump tweeting habits have always been speculated to move the markets, but now there is a way that would supposedly measure it, courtesy of J.P Morgan.

The same goes for the bond market and for interest rates. "This index can explain a measurable fraction of moves in implieds, particularly in shorter tails (2-year rates, and 5-year rates, as opposed to 10-year rates)".

"We can move toward a rough estimate of how much these market-moving tweets have pushed up volatility pricing in the swaptions market", JPMorgan said.

JPMorgan's new "Volfefe" index tracks the impact of Trump's tweets on markets.

On the flipside, markets surged in mid-June, when Mr Trump tweeted that he "had a very good telephone conversation with President Xi of China".

In early-August, Wall Street plunged (one of the many occasions it did so recently) when Mr Trump chose to ramp up his trade dispute with China.

"With heavier tweeting on United States dollars and the Fed likely to feature moving forward and these tweets seeing a bit larger and more consistent market moves, it would not be surprising to us if the market showed more, not less sensitivity to tweets over time", the strategist concludes. Days with fewer presidential tweets tend to see positive returns of five basis points on average.

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