Make market volatility great again? Analysts at JPMorgan Chase & Co have created an index to gauge the effect of US President Donald Trump’s tweets on US interest rates, which they say is on the rise.
The “Volfefe Index,” named after Trump’s mysterious “covfefe” tweet, suggests that the president’s tweets are having a statistically significant effect on Treasury yields.
The number of market-moving Trump tweets has ballooned in the past month, with those including words such as “China,” “billion,” “products,” “democrats” and “great” most likely to affect prices, the analysts found.
“Trade and monetary policy have become an increasing focus for the executive branch, and everything from casual sentiments to seemingly formal policy intentions have been disseminated, globally and instantaneously, via this carefully scrutinized social media platform,” analysts led by Josh Younger and Munier Salem wrote.
“In response, a broad swath of assets from single-name stocks to macro products have found their price dynamics increasingly beholden to a handful of tweets from the commander in chief,” they wrote.
The president has averaged about 10 tweets a day since the start of 2016, with 10,000 tweets occurring after his inauguration in 2017, JPMorgan’s analysis showed.
Trump’s Twitter activity reached a low of five tweets per day heading into his official inauguration, but has picked up substantially since late last year — with his highest number of tweets in the past four years occurring in the past few months.
JPMorgan’s analysis looked at Treasury yields in the five minutes after a Trump tweet, and the index shows the rolling one-month probability that each missive is market-moving.
They found that the Volfefe Index can account for a “measurable fraction” of moves in implied volatility, seen in interest rate derivatives known as swaptions.
That is particularly apparent at the shorter end of the curve, with two and five-year rates affected more than 10-year securities.
JPMorgan is not alone in attempting to calculate the effect of the president’s Twitter activity on markets.
Analysts at Bank of America Merrill Lynch published a note last week concluding that days where Trump tweets relatively frequently tend to see negative returns of nine basis points on average. Days with fewer presidential tweets tend to see positive returns of five basis points on average.
Still, the S&P 500 is up more than 35 percent since Trump won the 2016 election.
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