Investors are growing more sceptical that the Trump administration will be able to nurture an economic bounce, with Treasury yields and the US dollar sagging to new post-election lows and the US equity market increasingly dependent on technology stocks to maintain its highs.
The 10-year Treasury yield dipped to just 2.13 per cent on Tuesday, its lowest since the immediate post-election surge in November. While investors expect the Federal Reserve to raise interest rates again next week, a string of disappointing economic data has spurred them to ratchet back forecasts for further monetary tightening.
Jamie Dimon, the chairman of JPMorgan Chase, and Josh Bolten, a former chief of staff to President George W Bush who now runs The Business Roundtable, a right-leaning group of executives, noted on Tuesday that CEOs were still hopeful on the prospects for the economy under president Trump, but warned that much hinged on the bogged-down tax reforms.
“Policymakers should take away that big US businesses remain optimistic, that there’s a great deal of upside, but there’s substantial potential downside from failure, which should add to the urgency with which they should pursue the reform,” said Mr Bolten.
Initial expectations of a blitz of growth-friendly policies from the Trump administration — such as comprehensive tax reform and deregulation — have unravelled as the president has instead been distracted by political scandals that have sapped the administration of the customary post-election momentum.
This week, which the White House billed as “infrastructure week”, is likely to be dominated instead by Thursday’s Senate intelligence committee testimony from James Comey, the former director of the FBI, about his conversations with president Trump leading up to his shock firing in early May.
“The markets remain concerned about the potential landmines in James Comey’s testimony,” Andrew Brenner, head of international fixed income at National Alliance, said in a note to clients on Tuesday. “Every day the odds for legislation decrease.”
Investors’ spreading pessimism has weighed on the US dollar, which initially rocketed to a 14-year high against its main counterparts soon after Donald Trump won November’s presidential election. Coupled with rising hopes that Europe has turned the corner, it has pushed the DXY dollar index down 5.5 per cent this year, to its lowest since October.
The US stock market reached a new record high earlier this month, with the S&P 500 index up nearly 9 per cent already this year. But many of the “Trump trades” that dominated markets late last year have faded, and instead the technology sector has powered the rally for much of 2017.
Highlighting the growing investor disquiet, Ray Dalio, the world’s biggest hedge fund manager who had earlier voiced hopes that Mr Trump could “ignite animal spirits”, this week said he had grown more concerned at the president’s actions.
“When faced with the choices between what’s good for the whole and what’s good for the part, and between harmony and conflict, he has a strong tendency to choose the part and conflict,” the Bridgewater Associates chairman said in a LinkedIn post on Monday. “The more I see Donald Trump moving toward conflict rather than co-operation, the more I worry about him harming his presidency and its effects on most of us.”
Mr Trump’s decision to withdraw the US from the Paris climate change accord has also worried some CEOs, who fret over the broader signal it sends of Washington withdrawing from the international system.
“It’s very disappointing,” Dick Weil, the co-chief executive of Janus Henderson, the $320bn Anglo-American asset manager, told the FT. “It’s not just global climate change, it’s a whole range of security and economic issues that all need global co-operation. For economies to thrive they need strong and stable societies, which in this world requires co-operation.”
The recent run of weaker-than-expected US economic data has fanned concerns that the hoped-for economic acceleration was dissipating, and has helped push down bond yields significantly this year.
The Fed is next week widely expected to raise interest rates for a third time since it started tightening monetary policy in December 2015, but markets are sceptical of its plans to lift rates again later this year.