US president Donald Trump is tweeting more often these days.
The bad news is that, despite the mental health benefits of switching off the social media platform, if you manage money for a living, you cannot afford to ignore him.
Strategists at JPMorgan Chase have crunched the numbers. The result — and we have to applaud the Atacama Desert-levels of dry wit on display here — is the “Volfefe Index”.
Named after the president’s baffling “covfefe” tweet of 2017, the index (pronounced vol-fey-fey) seeks to determine how much @realDonaldTrump shakes up the bond markets. The short answer: quite a lot.
“The president’s remarks . . . have played a statistically significant role in elevating implied volatility,” the three-strong team at JPMorgan in New York wrote in a note released late last week. “Market-moving tweets have ballooned in frequency this August.”
Of course, the impact of tweets from the leader of the free world depends on their content. His fondness for slating London’s mayor, retweeting rightwing polemicists or lashing out at the “fake news” media, is unlikely to move the dial.
But his increased focus on trade talks with China, and on monetary policy, is a significant switch. On the latter front, it is worth bearing in mind that Mr Trump has taken aim not only at Fed chair Jay Powell (“where did I find this guy Jerome?” he lamented last week) but also at European Central Bank head Mario Draghi, who he believes has been “very unfair to the United States!”. The prospect of currency wars directed on Twitter is worth taking seriously.
As such, there has been a big increase in the rolling one-month tally of presidential tweets followed by at least a half basis-point move in 10-year Treasury yields within the following five minutes. The Volfefe index has leapt from an average of 0.05 earlier this year to 0.1 now. Implied volatility — a measure of traders’ expectations for price moves ahead — is showing the strain.
Among about 4,000 tweets during trading hours over the past year, 146 have proven to be market-moving, the bank calculates. Happily for traders, most of these tweets are fired out at a “time fortuitously coterminous with some of the best intraday liquidity in US rates markets,” the bank observes. That means it is at least possible to react to Mr Trump’s pronouncements on global trade and the dilemmas facing global monetary policymakers in a timely fashion.
While these pronouncements may excite markets, it is not clear that they fire up the president’s core electorate, however. JPMorgan calculates that market-moving tweets have attracted a dwindling stream of favourable responses from followers since the start of this year. Likes and retweets have a poor correlation with financial-market volatility, it seems.