The big headlines went to the tone of the Trump speech to Congress. The more telling story was below the headlines: the probability that the Federal Reserve will raise its policy rate in March has risen.
And, the markets? Well, the value of the US dollar rose and the price of US Treasuries fell. Furthermore, this appeared to be a worldwide reaction.
It is very, very interesting that two prominent Federal Reserve officials, William Dudley, President of the Federal Reserve Bank of New York, and John Williams, President of the Federal Reserve Bank of San Francisco, both spoke on the day that President Trump spoke, and both argued that the case for an increase in the Fed's policy rate in March had become "much more compelling."
Initially, during the Trump speech, the value of the US dollar fell, but then, it reversed itself and rose strongly even into the morning. Early in the morning, it took only $1.0525 to buy one euro, a price not seen since the middle of January 2017.
The ironic comment to all this was: "To be honest, Bill Dudley has knocked Trump out of the financial market headlines today."
As far as the speech went, there was general approval of the direction of the speech, the tone of the speech, it was optimistic rather than dark, and the softer approach, the effort to create an environment where parties could work together.
However, the speech was short on details, and this is what allowed the comments from the Federal Reserve officials to dominate the market.
And, this shortfall in detail is a problem of getting Trump's whole agenda moving through the government's maze… Mr. Trump has his cabinet pretty well in place, but he doesn't have the next few levels of the administration identified.
That is, he doesn't have the people on board who will fill in the details and write the specifics needed to get the program through Congress.
Neil Irwin of the New York Times even goes a little bit further. Mr. Irwin claims that the Congressional effort of the past few years has been to oppose, but not to plan. As a consequence, the base of experts… the "wonk" base as he calls them… is not as prevalent as it might be.
Furthermore, given the fact that Mr. Trump is not one that is big on details, and also given the fact that Mr. Trump all through the election process was not expected to win the presidency, little was put in place during the campaign to fill this need.
So, while stocks and stock futures move upwards, both in the United States and globally, the value of the dollar rises and bond prices fall.
The optimism connected with Trump's objectives can still be translated into rising stock prices, but the economic data being received by the Fed officials point to rising interest rates this year, and this, within the current setting, points to a stronger dollar.
And all discussion points to the fact that although President Trump made a big splash in terms of executive orders and actions during his first five weeks in office, his actual economic program will need an enormous amount of effort and time to find its way through the legislative process.
Thus, the actual impact of his programs will occur sometime down the road. Apparently, all he can do right now is raise the "animal spirits" of investors and business leaders.
Meanwhile, the Federal Reserve is gaining attention that it might actually do what it said it might do in the "forward guidance" it provided markets after its December rate move: it might actually raise its policy rate three times this year.
The Fed actions are positive for a stronger US dollar and higher Treasury bond rates.
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