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Trading Trump: Wall Street stresses over White House comments

Reuters  |  NEW YORK 

By and Trevor Hunnicutt

NEW YORK (Reuters) - JPMorgan Chase & Co's trading desk was not buying what U.S. was selling this week.

On Tuesday, major stock indexes plummeted more than 3 percent on renewed fears of a trade war with - just days after Trump tweeted, following a steak dinner with Chinese Xi Jinping, that "Relations with have taken a BIG leap forward!"

"It doesn't seem like anything was actually agreed to at the dinner," JPMorgan wrote in a note to clients later that day, adding that Trump's tweets "seem if not completely fabricated then grossly exaggerated."

GRAPHIC: Trump says relations with took 'BIG leap forward' https://fingfx.thomsonreuters.com/gfx/mkt/11/3240/3224/1tariffman.jpg

The mistrust from the bank's trading desk highlights a broader dilemma for Wall Street investors: how seriously to take comments from the

On one hand, traders have long known that Trump's bold pronouncements do not always hold, ultimately muting their effect on securities. On the other hand, market volatility has picked up in 2018, in part because of confusion over comments by officials, making them harder to ignore.

GRAPHIC: Trump says he is 'a Tariff Man' https://fingfx.thomsonreuters.com/gfx/mkt/11/3241/3225/2tariffman.jpg

"It's a judgment call about which announcements should be taken seriously," said Maria Vassalou, for Perella Weinberg Partners' $685 million global macro strategy.

"This situation certainly creates unnecessary volatility and complications to the investment process."

GRAPHIC: Trump and Mnuchin comments whipsaw U.S. dollar https://fingfx.thomsonreuters.com/gfx/mkt/11/3244/3228/mnuchin-dollar.jpg

It is not just Trump. Unexpected comments from officials such as and have caused a stir with traders. Each man was cited by as a of market moves more than two dozen times.

Mnuchin sent the U.S. dollar to a three-year low in late January after comments at the in suggesting that a weaker currency was "good for us." Within hours, Trump appeared to contradict him, saying he ultimately wanted a strong dollar, lifting the greenback.

GRAPHIC: S&P 500 moves as Kudlow, and Trump weigh in on

trade wars https://fingfx.thomsonreuters.com/gfx/mkt/11/3245/3229/trump-trade.jpg

As for Kudlow, on April 4 he told reporters that it was possible the U.S. tariffs on Chinese might never go into effect and may be simply a negotiating tactic. Stocks rose after the remarks, which an unnamed later told were meant to reassure markets.

Yet equity futures fell the next day after Trump said in a statement that he had instructed U.S. trade officials to consider tariffs on an additional $100 billion worth of imports from China to punish them for retaliating against earlier announced tariffs.

HEDGING TRUMP

Some investors have taken protection from White House-fueled volatility into their own hands.

Juan Gomez, of firm which manages $75 million in assets, said he has adjusted his options-focused models over the last two years to incorporate more protection against market volatility, partially in response to comments.

"At this point you are expecting controversial headlines," Gomez said. "At the beginning, it drove me crazy, but now it's just part of what to expect."

Katina Stefanova, of which manages approximately $300 million, said her firm had created a "Trumponomics" index of securities to help hedge the broader portfolio.

Stefanova said her fund's profit this year - up about 7 percent in 2018 through November - would be around two percentage points lower without the index, which has recently focused on impacts of U.S. trade wars, such as Chinese technology stocks, U.S. industrial companies and Asian currencies.

"You still have to take the White House very seriously," Stefanova said. "Inconsistency itself swings markets and affects sentiment."

Other investors simply try to look past White House headlines.

Daniel Lowen, of Quantedge Capital USA Inc, said his approximately $1.5 billion firm's algorithms do not try to anticipate market movements from pronouncements. "We make no attempt to interpret what we read in the as input to our investment decisions," Lowen said.

The of equities at a multi-billion-dollar hedge fund manager, who requested anonymity in order to speak with the media, said Trump's comments are "impossible to ignore" but the firm avoids reactive trading even if it can hurt in the short term. "We try and actually isolate our returns from market risk," the person said.

Whatever the reaction, professional investors said the White House's effect on markets is hard to avoid. Securities are virtually certain to continue moving on statements related to U.S. trade policy, interest rate changes and other economic issues. The CBOE Volatility Index, or VIX, a common measure of perceived fear in the markets, is up nearly 90 percent this year.

"Maybe some people are good at parsing their words and figuring out what's what, but that's very difficult," said Fritz Folts, chief investment strategist, 3EDGE Asset Management LP, which oversees approximately $800 million. "You have to look at what they do and not what they say."

(Reporting by and Trevor Hunnicutt; Additional reporting by and in New York; Editing by and Lisa Shumaker)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Thu, December 06 2018. 18:42 IST
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