Investors seek statesmen like State of the Union speech

State of the Union vs. Twitter

Assuming at least some of the flight from risky assets evident at the time of writing had an eye to the State of The Union speech, some of the weight on stock markets could lift on Wednesday after President Trump’s first such address has taken place. (The address is scheduled to begin at 9pm EST/3am GMT). Recall however that it took the President just days to pivot away from a relatively emollient and inclusive first address to Congress last February with unsubstantiated accusations against former President Barack Obama, on Twitter.

Style as much as substance

For that reason, investors may stay tardy for longer than the middle of the week, for fear Trump may be inclined to ‘balance’ a more statesman-like State of the Union address with more pointed commentary soon after. Indeed, communication style is as high on the list of points to watch overnight as much as the talk’s content. The President has an opportunity to again strike the more measured tone he sounded in a rather pedestrian Davos speech last week. The risk is that the balance of that tone will tilt towards invective pointed at supposed ‘middle America’—reflecting what appear to be Trump’s fall back instincts.

If things go that way, key planks of the White House’s agenda that may also be mentioned, may be examined less. Any reaffirmation of fiscal intentions, for instance, would lose some potential positive market impact.

Key points to watch

Going by news reports from senior unnamed White House officials, the likely content of the speech can be broken down to five key areas: jobs, infrastructure, immigration and national security. Within those, key elements that have been flagged are outlined below.

Jobs

The President’s propensity to take credit for the booming U.S. labour market should be on show. Reuters reports that guests of his wife may include ‘ordinary’ beneficiaries of tax cuts. Successful ‘feel good’ could find its way back to markets

Immigration

The ‘Dreamers’ for Wall funding quid pro quo that emerged as one of the indirect conditions to reopen government from shut down, will be rehashed. The extent to which this element concentrates on consensus seeking rather than more free-floating animus could go a long way to lowering the odds of another shutdown that could roil the dollar further.

Trade

“Fair and reciprocal’ trade will be insisted upon, according to reports, with China possibly mentioned by name. If dwelt on, the greenback’s recent tally of negatives will lengthen, though we have noted elsewhere, fundamental and chart-based dollar downside is getting difficult to sustain after the dollar’s plunge throughout this month.

National Security

White House officials may have made the most pre-briefing efforts on this topic. The focus will be domestic, hence relatable to the administration’s immigration stance. Military funding and North Korea may not be left out. Defence contractors’ shares may win attention, though that depends on the how much detail the President offers—we suspect relatively light.