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Is it really a 'Trump put' in the stock market?



Did the "Trump phrase" expire on American stocks – or did it ever exist?

A steep Friday sale inspired by an angry presidential tweet storm against Beijing, as well as Federal Reserve leader Jerome Powell, have calibrated again that stock market crashes would dampen Donald Trump's tactics in the US-China trade war.

Related: Stocks may prolong the fall as & # 39; Trump put & # 39; and & # 39; Bold put & # 39; expires, says Morgan Stanley's Mike Wilson

"The conventional wisdom that stock index levels provide a meaningful check on the president's trade policy has not been a valid investment task since early August," analysts at Macquarie wrote in a Monday note, saying that investors " learned again that there is no Trump statement but that it is a Fed cushion. ”

Read: Escalation in US-China trade war threatens global economy, Trump poses re-election risk

In real life, a put option is an instrument that gives the holder the right, but not the obligation, to sell an underlying asset at a fixed price before a certain point in time ̵

1; a potentially valuable hedge if a bullish investment on the asset goes south. the phrase and the Fed phrase are references to the belief of some traders as to whether either the White House or the central bank would change the policy or otherwise take measures to strengthen stocks and other asset markets in the event of a shock.

Trump appears to calm the markets early on Monday, saying that Chinese authorities had been in contact with US officials who wanted to resume trade talks – even though China disputed the nature of the contacts. But it comes after a sellout on Friday that saw the Dow Jones Industrial Average

DJIA, + 0.70% ,

Trump's favored target in the stock market, dropping more than 600 points on Friday, or 2.4%, while the benchmark S&P 500 index

SPX, + 0.74%

fell by 2.6%.

See also: As the US-China trade war deepens, Corporate America can deal with uncertainty

In addition, Trump followed through on Friday sales by announcing a further increase in tariffs for imports from China after Friday's market close.

"An important consequence of last week's events is that the strike price for the so-called Trump set may be lower than expected," wrote Neil Dutta, chief economist at Renaissance Macro Research, in a Monday note.

For the month to date to Friday, the Dow was down 4.6%, while the S&P 500 has withdrawn 4.5%. The August sale began after Trump surprised investors with the announcement of a 10% duty on $ 300 billion imports from China due to enter into force on September 1. Trump then delayed some of those tariffs until mid-December, but cited concerns about the impact on the US Christmas shopping season rather than a desire to offer an olive branch to Beijing.

China announced early Friday that they would implement current US $ 75 billion import tariffs, prompting a series of tweets from Trump saying the US did not need China and thereby "ordering" US companies to Look for alternatives to the country and start bringing operations home.

Tweets came after Powell made a speech at a symposium in Jackson Hole, Wyoming, which had seemed to please the markets by leaving the door on interest rates, but didn't seem to go far enough to satisfy Trump, which has continuously blasted the Fed for not aggressively cutting interest rates. In a tweet, Trump asked whether Chinese leader Xi Jinping or Powell was a major "enemy" to the United States

See: Trump blames Powell and Xi as & # 39; enemies & # 39; of the United States as Fed battle, trade war heats up

Trump's criticism of the independent central bank despite, Macquarie analysts said the issue of a Fed move remains, "Although there is disagreement about how effective it will be. "

Powell has effectively put the Fed on autopilot, they said, ready to cut interest rates as war risk intensifies. In addition, the Fed has more room to trade and can therefore do more than the Bank of Japan or European central banks, where interest rates are already in negative territory, if necessary.

In fact, Dutta claimed that with additional tariffs on the road, Britain apparently on its way to a "hard Brexit" from the EU, and global growth continues to soften, the risk of a "bolder move" seems relatively low.

"The market sees only a one-in-five chance of a 50 basis point cut in September," he wrote. "We think the odds are somewhat higher. The Fed can pull a cut from the future to the present. "


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