Economist's Insights

President Trump Delivers in First Test of Political Posturing

Mar 1, 2017

Global markets are in clear risk on this morning after President Trump’s first speech before a joint session of Congress. While the speech offered few details on policy change specifics, it did touch on all of the key pillars of his platform. The highlight of the speech was the abnormally bipartisan, unifying call to action across party lines.  Repeatedly he urged Congress to work together to accomplish his vision.  A bit surprisingly, he prioritized replacing the Affordable Care Act with something more effective, followed by tax reform.  He said a massive tax reform package was in the works including reducing the corporate tax rate as well as taxes on the middle class, although he did not give details on how this would be funded.  He also called for a $1 trillion infrastructure investment program as the next priority, again, not specifying how it would be funded.  All told, he called for policies that have been both Republican and Democratic agenda items.  He only referenced the word “debt” in terms of the national burden one time which is likely to cause consternation for the debt hawks.  In contrast, President Obama mentioned the “debt” problem 12 times in his first speech before the joint congressional session after coming into office with just over $10 trillion in federal debt.  Today, federal debt outstanding is up to $19.9 trillion.  Bottom Line: President Trump’s speech is likely to be seen as a positive, unifying call to action on policies which should be pro-growth.  He is likely to have more leverage with congressional Republicans after the performance, perhaps dragging them into the fight in which they have been reluctant to engage.  And the Fed is likely to see this as a positive development alleviating some of the downside uncertainty of fiscal policy.

So far, the speech has been enough to satiate the markets.  The Dollar is higher against all of the major currencies and Treasury yields are climbing with U.S. equity futures. The 2-Year yield is up 4.4 bps to 1.304%, surpassing its post-Fed hike December high and marking the highest since August 2009. The 5-Year yield is up 7.1 bps to 2.001% and above the middle of its post-Fed range. The 10-year yield is 6.8 bps higher to 2.46%. Dow and S&P futures point to the indices opening at all-time record highs. The moves in the U.S. coincide with solid moves higher in most equities and sovereign yields elsewhere around the globe. Global PMIs were positive in both Asia and Europe as U.K. home prices rose more than expected and inflation in Germany continues to creep higher.  Fed Funds Futures have now moved back up to pricing in an 82% chance of a rate hike in March.