With “Trillions At Stake” Analysts Hope Trump’s Speech Will Be “More Shining City” Than “Dumpster Fire”

Monday, February 27, 2017
By Paul Martin

by Tyler Durden
Feb 27, 2017

Traders are on edge ahead of tomorrow’s key address by President Trump to Congress, in which as Bloomberg writes “trillions are at stake.”

Since Trump’s election, the S&P 500 has risen by 10%, posting 17 record closes in a rally that’s added $2.8 trillion in value to the U.S. equity market, with economists divided on how much of the rally is due to hopes from Trump’s pro-growth promises, how much due to corporate earnings growth (which are expected to rise 12% from last year’s energy-depressed levels), and how much due to the organic growth of the economy.

While it isn’t considered a State of the Union address since it falls within Trump’s first year, the initial speech to Congress has been no less important to presidents in the modern era.

The biggest wildcard, as documented over the past few months, are the details on Trump’s growth plan, with an emphasis on his proposed tax and spending cuts, offsetting the aforementioned $54 billion increase in defense spending, all of which so far have been sorely lacking.

Indeed, as Ryan Littlestone from ForexLive notes, if you want to trade this, look to see if he can highlight those areas for cuts rather than milking other genuine programs. If he does that then we’ve got a trade on, and possibly one that will really take off. “If he fails to give any real details, the dollar and the Trump trade could be in bigly trouble once again.”

Many others agree: “It’s possible that if the market hadn’t been rising so dramatically, we could wait,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.3 trillion. “But this is a market that’s pretty impatient and wants results.”

As Bloomberg adds, adding to the anxiety are differing views on how to proceed on tax reform. House Republicans are considering a border-adjustment tax proposal that shifts the burden from exporters to importers, arguing that it would benefit American manufacturing while providing revenue to make up for losses from reducing corporate-tax rates. Trump has called the plan “too complicated.” Meanwhile, as the debate grows, traders have reduced bullish wagers on the dollar, which is expected to soar as much as 15-20% should a BAT be passed. The dolalr has dropped 3.3% since January, after surging 6.5% after the Nov. 8 presidential vote. Hedge funds and other large speculators have cut cut net bullish dollar bets to the least since before the election.

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