Is the Trump trade running on borrowed time

The President-elect’s press conference on Wednesday was fascinating for many reasons, but for anyone looking to get more detail about the Trump administration’s economic plans, they were left short on detail.

The Trump risk premium

The press conference did highlight a few things that could become a motif of the Trump administration going forward. Firstly, he is still happy to call out entire corporate sectors that he thinks operate unfairly or charge the US government too much for products and services. Healthcare and defence were both in the firing line earlier. This had an immediate impact on the stock market, and healthcare was the worst performer in the S&P 500 and the Dow Jones on Wednesday. For now the pharma and defence sectors are under the Trump microscope, but the risk is that he turns on other sectors down the line, which could cause bouts of volatility.

Could Trump be bad for the dollar?

The second point to note about the press conference is his focus on bringing US production back onshore. He pointed out a few examples of car manufacturers who have decided to open factories in the US rather than in traditional low cost centres like Mexico. Eventually Trump’s focus could shift to the US dollar. If the greenback continues to strengthen then it could become a threat to US competitiveness, and the ability to sell off of the cars and other goods that will be produced on US soil during the Trump Presidency.

This may be one reason why the US dollar slipped more than 1% on Wednesday. However, the decline in the dollar could tell us something about stock markets also. We have mentioned that this press conference was short on details about the Trump administration’s strategy for boosting the economy. Car manufacturing alone won’t make Donald Trump the US’s greatest ever jobs creator, likewise, we didn’t find out anything about the mega fiscal stimulus that he has been promising.

Time is ticking for the Trumpflation trade

Stock markets may have risen on Wednesday, including a fresh record high in the Nasdaq, but will the markets’ continue to give Trump the benefit of the doubt that he can deliver on his economic promises? Since the dollar and US stocks have risen in unison, could Wednesday’s decline in the greenback be a sign of things to come for US stock markets? We think that the pressure could start to pile up after next Friday’s inauguration. If we don’t get more detail on his economic plans by the end of January then the US stock market rally could be toast.

I’ll leave it up to others to muse on the political ramifications of this press conference, but one thing is for sure, the White House has never seen anyone like Donald Trump before. From a markets perspective, Trump better get his plans in order, the market rally may not live on promises alone once he takes office.