Wall Street tells Trump to show it the money in speech to Congress
With Wall Street craving details about the US President’s agenda, Trump’s speech to Congress could rattle markets today.
If in his speech President Trump spends too much time on migration and media issues watch share prices tank. Wall Street has risen dramatically because share investors have bought the Trump business agenda. Bond investors in recent weeks have been much more cautious, so yields on bonds have fallen from their peaks.
In pure market terms, migration and media are side issues and any concentration on them means Trump is getting bogged down and the business agenda may be delayed.
To some extent, abolishing Obamacare is also a side issue for the markets although it has a big impact on health stocks. But the American market understands that Obamacare is on top of Trump’s agenda and so health must be fixed first. It’s proving more complex for Trump’s people than was expected.
The market is craving details about the timing and specifics of Trump’s plans to slash taxes, abolish regulations and embark on massive infrastructure spending.
Wall Street is betting that enormous corporate tax savings will translate into much greater profits. Trump wants to reduce the corporate tax rate to between 15 and 20 per cent from the current 25 per cent.
In classic movie talk the market says, “show me the money”.
They also want to know more about the plan to make interest non-tax deductible but allow for the write off of capital spending.
To pay for at least half that tax cut requires either an increase in tariffs on imported goods or a so-called border tax.
Trump favours tariffs but the House Republicans favour a border tax that would give tax breaks to American companies that ship products to other countries but strip tax deductions from American companies that import goods (How to navigate through Trump’s brave new world, February 17).
http://www.theaustralian.com.au/business/opinion/robert-gottliebsen/how-to-navigate-through-trumps-brave-new-world/news-story/ba468983b16ec26f16a598940417cc8f
The market wants to know which way the President is headed.
Last night the Canadian dollar slipped, which indicates that currency traders believe there maybe clarity on this issue in the speech.
One of the markets biggest fears is that Trump will erect trade barriers or demand changes to trade deals like NAFTA that will create a tit for tat trade war.
A big part of the Trump plan is to build or rebuild roads, bridges and airports, so infrastructure stocks like US Steel and US Concrete have risen strongly.
But infrastructure spending has not been emphasised in recent days. The market wants it back at the top of the agenda.
Have US shares gone too high?
Warren Buffett says he is still buying because interest rates remain extremely low.
“Measured against interest rates, stocks are actually on the cheap side,” Buffett says.
If Trump actually ignites the US economy, then inflation looks set to rise and so will interest rates.
I look forward to discussing the speech with you this afternoon.
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When President Trump begins to address the Congress it will be 1pm Australian eastern time, so our market will be an early indicator of global sentiment.