Trump ‘calms’ markets

The President’s speech at Davos was the most anticipated event of the week. It was delivered in his traditional style: very long, full of anecdotes, and wide ranging in terms of scope. However, there were two key takeaways for markets. Firstly, Trump will not take Greenland by force and 2, Trump wants the economy to run hot to send US stocks flying north.

US stocks jump, as sell America trade become buy America trade

Traders are reacting to Trump’s speech: US stocks have opened higher and are starting to reverse Tuesday’s losses. The dollar is clawing back some of this week’s losses, and Bitcoin has also caught a bid. US stocks are still lower YTD, but a strong session today could change that. Greenland could still be an issue for financial markets, since Trump has said that he wants to gain control of Greenland and will start immediate negotiations to do so. However, today’s speech suggests that Nato is not under immediate threat, for now.

Trump focuses on Euro-bashing, but is silent on tariffs

European stocks have recovered slightly on the back of the speech, although gains are limited so far, and US indices are outperforming their European counterparts this afternoon. There was no mention of tariffs, although Trump did engage in a fair bit of Europe-bashing, calling out clean energy policies, immigration and public sector spending that he says are ruining the US’s allies.

Economics instead of geopolitics helps soothe market fears

He clearly still sees Europe as being weak and is unwilling to back down from his view that the US is the only country strong enough to ‘protect’ Greenland. If Europe pushes back on this, then tariffs are likely to come into force in the coming weeks. This is bad news for Europe, and for the US, but there is one grain of truth in what Trump says: the US’s growth trajectory is significantly stronger than Europe’s, so tariffs will hit hard.

This speech was focused on economics instead of geopolitics and the President’s foreign policy ambitions. He spent the vast bulk of the speech talking up the US, and its economic achievements. This is more palatable to traders, and it is why stocks are rallying, particularly in the US.

Trump speech a reminder not to take him at face value

Ultimately, this is typical Trump: he says one thing on a Sunday, says something else on a Wednesday, and manages to push the US and its economy front and centre. This is a US President who cares about the performance of the US stock market above everything else. Could today’s speech cast a shadow over financial markets for the rest of this year?

Trump’s ‘buy America’ trade

The way Trump has laid out the economic achievements of the US is something no European country can compete with. Will this trigger a recovery in US stocks and an end to speculation about the ‘sell America’ trade?  If the market jumps on the back of Trump’s ‘buy America’ trade, then US stocks could be poised to outperform Europe for the long term.

Europe’s defense stocks come under pressure

Trump’s speech has lowered the geopolitical temperature somewhat, and the gold price has backed away from its highs, although it remains well above $4,800 per ounce. For now, $5,000 seems to be out of reach for gold, the dollar index may have put in a low above 98.00, US stocks may outperform Europe, and Europe’s defense darlings could come under downside pressure now that Trump seems to have ruled out taking Greenland by force. Rolls Royce and BAE Systems are some of the weakest performers on the FTSE 100 today, and Rheinmetall, the German defense company, is the weakest stock on the Dax this afternoon. We could see an unwinding of the European defense theme in the coming days.

As we move into the second half of the week, volatility should fall as geopolitical risks recede. Yet another reason why the market should not take the President at face value.