By James Butterfill, head of research & investment strategy at ETF Securities.
ETF Securities analyses Trump’s first 100 days as President.
The market’s reaction to the first 100 days of Donald Trump’s presidency has moved in several phases: enthusiasm, confusion and disappointment.
President Trump signed 24 highly criticised executive orders in his first 100 days of office compared to an average of 14 executive orders by former Presidents Obama, Bush and Clinton. The market’s initial reaction to Trump’s highly active agenda was one of optimism as economic sentiment on current and expected economic conditions rose. However, we have also seen a rise in economic policy uncertainty.
The US Economic Policy Uncertainty Index tripled since last November, while the Sentix Sentiment on US economy expectations increased 15%, but has started to fade recently. The dollar index only increased 2% since the US presidential election, while the S&P 500 Index rose 10% and the Treasuries’ yield curve moved upward by an average of 35bps. We expect Trump’s policy uncertainty to continue to prevent US Treasury yields from rising too rapidly and limit gold selling pressure.
When Trump initially won the Presidency, cyclical commodities rallied and defensive commodities like gold sold off. The market was encouraged by the $1trillion infrastructure spend Trump had promised and industrial metals in particular rose. Despite Trump’s win being a surprise, gold sold off as bond yields rose and the US dollar rose.
However, as we expected, Trump has not provided enough detail about the infrastructure spend to make it credible. With his failure to convince Congress to support his healthcare reforms, markets have dialled back their expectations for both tax-reforms and any substantial infrastructure spending this year. Industrial metal prices have sold off as a result.
Gold on the other hand has recovered all of its losses since the Presidential election. Trump’s failure to achieve certain policy reforms has led investors back to the defensive asset. Markets had not expected Trump to take on an interventionist stance on foreign affairs. Yet the missile strikes on Syria and demands for North Korea to stop missile tests signal this not to be the case. Gold, being the first port of call in times of investor anxiety, has been rising since these events.
(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)