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Making sense of Trump's U-turns

This article is more than 12 months old

Last week's column discussed the likelihood that markets would trade within narrow ranges (and likely come under some pressure) because of heightened geopolitical risks.

As it turned out, this was exactly the case as investors waited to see what might transpire in the Korean peninsula, where the sabre-rattling from the North has been rising in magnitude after the US despatched an aircraft carrier group to the region.

As noted last week, the problem facing investors is that relying on politics to set market direction is a difficult business, with what goes on behind the scenes perhaps carrying more weight than what plays out in public.

Making matters worse is US President Donald Trump's 
U-turns on campaign promises that are puzzling markets and adding to uncertainty.

First are his comments last week that he no longer sees China as a currency manipulator, after he had built a large part of his election platform on penalising China for what he claimed was blatant currency manipulation that was hurting America.

Then came statements that he likes low interest rates and respects US Federal Reserve chair Janet Yellen, after having disparaged Ms Yellen during his campaign, saying she should be ashamed of herself for keeping rates depressed for so long.

Last, but by no means least, is his comment about the US dollar being too strong and thus hampering US competitiveness while other countries were quietly devaluing their currencies.

One theory is that if he dislikes a strong dollar, then higher interest rates would only aggravate the dollar's strength, so that could explain that U-turn.

Another, proposed by Rabobank, is that his comments last week came just before the US Treasury is expected to release its bi-annual currency report on "foreign exchange policies of major trading partners of the United States".

The previous Oct 14 report to Congress stated that the Treasury should "undertake an enhanced analysis of exchange rates and externally oriented policies for each major trading partner that has: (1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one-sided intervention in the foreign exchange market". Notably, the report stated that the Treasury found that no economy satisfied all three criteria.

Mr Trump's U-turn on the trade and currency fronts could have come because this month's Treasury report is expected to reach the same conclusion.

"Mr Trump is most certainly not the first politician to make many promises on the campaign trail only to be forced into an about-face on these promises once in office," said Rabobank.

"Rhetoric and reality are two very different things. Unfortunately, the market's ability to accurately separate which is which when it comes to Mr Trump makes assessing his policies and the impact these are likely to have all the more challenging."

In the early part of the week ahead, it is likely that the Straits Times Index will encounter spillover selling from Wall Street's pre-holiday selloff on Thursday that resulted after the US military dropped a large bomb in Afghanistan.

If this is yet another reminder of the importance of geopolitical risk, then so are the nuclear overtures from North Korea.

However, it is also true that in times of heightened uncertainty, safe havens tend to do well - gold is an example.

So there is a good chance that the selling of the local market, given its traditional safe-haven reputation, should be well-contained. That is, at least until Mr Trump's next U-turn.

This article appears in The Business Times today. For full listings of SGX prices, go to

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