Donald Trump’s election-related tweets are more likely to drive a soar in volatility on the earth’s largest funding market, in response to the JPMorgan Chase & Co. analysts who created the Volfefe Index.
Named after Trump’s inscrutable “covfefe” tweet from May 2017, the index makes an attempt to gauge the affect of Trump’s tweeting on the U.S. Treasury market via rate of interest derivatives often known as swaptions. JPMorgan’s revised evaluation reveals that whereas the sensitivity of the market to the president’s tweets peaked in May, within the midst of the Covid-19 pandemic, the Trump’s Twitter exercise nonetheless considerably influences expectations of volatility on this key market.
The total quantity of Trump’s Twitter exercise continues to develop, with the president’s favored subjects shifting because the yr has unfolded. Tweets associated to the pandemic and the Nov. three presidential election have surpassed these associated to the commerce struggle with China and different geopolitical themes, in response to JPMorgan’s information. Tweets mentioning “ventilators” had probably the most affect available on the market, a change from final yr when phrases similar to “China,” “billion” and “products” produced the most important results.
Investors are pricing in expectations of upper volatility across the election, with a JPMorgan evaluation from earlier within the month displaying that the U.S. Treasury market is braced for a contested election. In the inventory market, buyers have been buying volatility safety extending past November and signaling expectations that the presidential battle might drag on for weeks or months. The death of U.S. Supreme Court Justice Ruth Bader Ginsburg has added to heightened volatility expectations in U.S. equities.
“Presidential tweeting remains a statistically significant driver of volatility and options pricing in interest rates,” JPMorgan analysts led by Henry St John and Josh Younger wrote of their observe. “Should the topic of those pronouncements turn to topics to which markets have been more sensitive — Covid-19, the election, and geopolitics, for example — it could be a bullish factor for volatility heading into November.”