Donald Trump's tweets swing the market - the 'Volfefe' index proves it

Andrew Cummings
September 10, 2019

Experts at JPMorgan Chase have made a list to check the effect of Donald Trump's tweets on USA loan fees, which they state is on the ascent.

Certain words had more of an effect on markets, including China, trade, and Mueller.

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The name is a joke, combining "volatility" with the non-word "covfefe" that showed up in a famously mysterious 2017 Trump tweet.

Traders know that when President Donald Trump tweets he can rock financial markets, often in unpredictable ways, but analysts at JP Morgan have now quantified the impact of his tweets, at least on the US interest rates market. On days with fewer than five presidential tweets, the market has risen.

"Trade and monetary policy have become an increasing focus for the executive branch, and everything from casual sentiments to seemingly formal policy intentions have been disseminated, globally and instantaneously, via this carefully scrutinized social media platform", said a report from the bank.

While the bot's "utility in scoring any given tweet is somewhat limited", but the bank said the findings allow it to "construct statistical aggregates - a Twitter-vol index - with which to monitor and quantify shifts in the market environment".

It is no secret that US President Donald Trump's prolific use of Twitter over the past couple of years has created massive volatility on financial markets.

JP Morgan used its own volatility model and machine learning techniques to study how Mr Trump's 280-character posts have caused US Treasury yields (or government bond interest rates) to either surge or plunge.

The U.S. dollar - whose recent strength against major currencies has drawn much of the president's ire - weakening against the euro and the Japanese yen is the most pronounced reaction to the president's tweets about the greenback, analysts at Citigroup said in a Friday note. The graphs are based on the time of the tweets and the words that Trump used with a quantifiable impact of them on the United States interest rates within five minutes of the tweet.

The analysts also tried to deduce the keywords that featured in such market-moving tweets.

The Volfefe index can explain some of the movement in market forecasts of where rates are headed, particularly the shorter duration two-year and five-year rates, the analysts said. The report also notes that Trump is most likely to sleep between 5 a.m. and 10 a.m. because there's a lull in tweeting activity between those times.

Recently, Trump was accused of attempting to move stock markets. Trump has also consistently ripped into Jerome Powell and the Federal Reserve to push for lower interest rates.

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