Believe it or not, Twitter has the power to influence governments and the financial markets through tweets. One person who has moved policy and market directions through his tweets is US President, Donald Trump. Ever since Mr. Trump took office, he has resorted to Twitter to voice his pleasure and displeasure regarding a vast variety of incidents, policy changes and much more. Personal or not, his tweets have always had a profound effect on the markets; bringing short-term volatility to corporate equities and the currency markets alike.
Let’s take a closer look.
1. Toyota Stock Crash
According to a study by the Wall Street Journal, President Trump’s Twitter releases impacted 12 major company stocks in the aftermath of his elections in December 2016. For instance, his tweet regarding Toyota’s business operations on January 5, 2017, said:
Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.
— Donald J. Trump (@realDonaldTrump) January 5, 2017
As a result, the company stocks lost almost US$1.2 million in market cap in just 5 minutes of the tweet being uploaded. Over the next few months, the stock continued its downward spiral, losing a total of $12 billion in market cap. Other companies that suffered include Amazon, General Motors and Nordstrom.
2. The Mexican Peso (MXN) Downfall
Mexico’s trade and cross-border relationship had been a prominent theme of the 2016 US Presidential Election. On January 3, 2017, Mr. Trump tweeted his displeasure regarding the US auto industry’s involvement in Mexico.
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!
— Donald J. Trump (@realDonaldTrump) January 3, 2017
This was similar to the Toyota tweet. Tweets like these brought down the USD/MXN rate by 2%, to a record low of 21.619 pesos to the dollar. During the extended session, the rate dropped 3.5%, leading to intervention by Mexico’s Central Bank.
3. Amazon.com and US Postal Service Hit by Tweets
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
— Donald J. Trump (@realDonaldTrump) March 29, 2018
These were President Trump’s words on March 29, 2018, resulting in high volatility in Amazon’s shares, which fell over 3.8% in the next session. It is interesting to note that a subsequent positive tweet on April 3, 2018, led to an increase in the share price by 1.4%. Amazon suffered losses of £35.5 billion in market cap as a result of this.
4. Effect on the Oil Markets
It has been decided that from January 2017 to the end of 2018, extended production cuts would be undertaken by OPEC and several non-OPEC nations. President Trump tweeted on April 20, 2018, amidst rising oil prices:
Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!
— Donald J. Trump (@realDonaldTrump) April 20, 2018
Within minutes of his tweet, The Brent crude price fell 0.6%, while WTI fell 0.7%. The tweet also seemed to have encouraged participation in several crude oil futures and brought short-term volatility in the market.
5. Effect of Trade War on Commodity Prices
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
The above tweet, on March 2, 2018, was just the beginning of the US/China trade war to be launched in the next few months. In July 2018, a 25% tariff on $34 billion worth of Chinese goods was imposed, with China retaliating with similar measures. The soybean market, in particular, took a hit as a result. Soybean futures dated for November fell to $8.26 per bushel. This was the lowest in a decade.
The words that political leaders choose can impact the financial markets significantly. This is why it is always recommended to keep an eye on geopolitical events when trading in forex or any other instrument.
