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All Hail the Tweeter-in-Chief

T Minus 40:
Countdown to Trumpocracy

Don Curren December 12, 2016

A majority of Americans believe President-elect Donald Trump is tweeting too much, according to a recent poll. Traders and investors around the world may soon be joining them.

Trump’s use of social media is unprecedented for a major world leader (technically, Trump remains merely president-elect until Jan. 20, but on Twitter he doesn’t seem to observe such niceties).

Politicians and government officials have been using Twitter and other social media sites for making announcements for a while. But they usually do in a cautious, sober fashion. And if they’re not addressing matters of state and are instead speaking in a “personal” voice, their statements are usually carefully crafted so as to not offend anyone. With Trump – as it often is – the case is entirely different.

His tweets are often intensely personal, strongly stated, and issued without any apparent censorship, either internal or external. The combination of nervous financial markets and a volatile and unrestrained “Tweeter -in-Chief” is a potentially toxic one.

The fact that a lot of trading these days is executed almost instantaneously by computers driven by algorithms makes that toxic combination potentially explosive, as well.

Last week, Trump tweeted that the U.S. aircraft maker Boeing was building a brand new Air Force One for future presidents, but that “costs are out of control, more than $4 billion.” In case that wasn’t clear enough, he ended his 140-character tirade with the phrase “Cancel order!”

The reaction was interesting. CNBC reported there was a full 10-second delay before Boeing’s stock started declining. In the contemporary world of computer-driven trading, 10 seconds is an eternity.

Market watchers inferred from that delay that there weren’t any algorithms responding to the tweet.  Some suggested that no one has yet figured out how to build an algorithm that can respond effectively to Trump’s idiosyncratic tweets.

Boeing shares did fall just under 1% shortly afterwards, but the company later recovered those losses and ended the session virtually unchanged.

Trump unleashed another volley of anti-aircraft (company) fire Monday morning, scoring a direct hit on Lockheed Martin and causing a sharp loss of altitude in its stock – about $4 billion worth, according to CNBC. He declared that costs on the company’s F-35 fighter program are “out of control.”

The President-elect hasn’t unleashed any tweets that have caused instant volatility in other asset classes, such as currencies, at least not since his electoral win. His remarks about the possibility of renegotiating U.S. Treasury bonds caused a bit of a kerfuffle in May, but at the point he was not even the Republican Party’s nominee, and he softened – and obfuscated – his stand somewhat in subsequent remarks.

But the Boeing and Lockheed cases are instructive for other markets.

It’s worth noting that the drop in Boeing’s shares was short-lived. It may be that Trump’s tweets, in isolation, aren’t that consequential – how accurately and substantively can you write about the complexities of policy in 140 characters?

It turned out that Boeing’s only contract related to the Air Force One project so far is worth $170 million; the U.S. Air Force has estimated a five-year total cost of $2.8 billion for Air Force One.

Then there’s the question of how representative of Trump’s policy direction any one tweet is: when protests against Trump escalated shortly after his win, he criticized the protests, labeling them “very unfair!” Nine hours later he tweeted that he “loved the fact” they were protesting.

It may be that Trump’s tweets will trigger a rise of volatility in markets without changing underlying trends. This may be even more relevant to broader, more global markets such as currencies, where so many other factors are at play, potentially offsetting the Trump Effect.

Market players who know how to exploit volatility through options may be able to exploit the turbulence Trump is unlikely to unleash. Others should exercise caution – and keep one eye on the Twitter account “@realDonaldTrump” for more astonishing and potentially market-moving tweets.