January 21 – It’s Day #2 of Trump 2.0, and Wall Street is waiting to see what new executive orders will provide direction today, while continuing to digest Monday’s activities and headlines. Stock futures generally reflected a positive response to what traders have seen and heard from the Trump Administration thus far, which has carried over into this morning’s trade. The VIX is trading below 16 this morning, while the dollar index is trading near 108.5 as it recovers a portion of what it lost yesterday. Yields on 10-year Treasuries are trading near 4.56% this morning, while yields on 2-year Treasuries are trading near 4.25%. Crude oil prices are 2% lower on Trump’s emphasis on increasing drilling, while the grain and oilseed sector is mostly higher on expectations of increased trade with China.
The United States constitution allows the people to hit the reset button every four years – something that creates a continuously frustrating political environment, but which also allows for a peaceful change in direction when so desired. A president cannot serve more than two terms, which typically happens in succession. The American people have hit the reset button every four years in recent history, which may say something about our fickle nature. In this case, we went back to something that we’d already had in the past, which is rare. Wall Street would like to think that we went back to what worked after dabbling with alternative options. We know what to expect with Trump 2.0, since we’ve already gone through Trump 1.0 previously. But in some ways, Trump 2.0 may be much different, as President Trump changes directions on how he reaches his objectives, having learned from the first time about what did and did not work. Regardless, America takes pride in its ability to peacefully transition power from one administration to the other, even though that transition often times looks messy.
President Trump made it clear in his inauguration address that he planned to quickly undo much of what had been done by the Biden Administration. He wasted little time in signing executive orders to do just that. He shut the southern U.S. border to illegal immigration, while starting to evict some of the criminal element portion of the 10 million people who are estimated to have come across the border over the past four years. Trump also pulled the United States out of the Paris Climate Accord, as well as the World Health Organization. He established a Department of Government Efficiency to find ways to cut government spending, while putting a freeze on any new federal hiring or new regulations until his administration was able to get people in place to assess the needs. The Biden Administration’s mandate of moving the country toward electric vehicles is now dead, although Trump promised to resurrect the U.S. auto industry so that consumers can buy the car that they want, rather than what they are mandated. Most notably though, no executive orders were signed for implementing new tariffs, as many had feared, although it’s being reported that he plans to do so for Canada and Mexico by February 1st.
The markets reacted positively to his business growth agenda, in addition to the absence of new tariff initiatives on his first day in office. Traders are still braced for the possibility of significant tariffs, but they hope that there will be a more measured approach to the application of his tariff initiatives. Trump is moving forward with the establishment of an External Revenue Service for the collection of revenues from other countries, such as collecting these tariffs. However, there is a hope that the tariffs will be more targeted.
Trump may visit China later this year. That was one of the noteworthy statements made in passing during his executive order signing / impromptu press conference on Monday evening. He again stated that he had very good conversations with President Xi Jinping of China, indicating that he has re-established the working relationship that he and Xi had in his first administration. I previously stated late last year that we were hearing speculation on the ground in China about the possibility of a trade agreement. It might make sense for China to agree to buy more agricultural commodities from the United States in order to get more favorable tariff treatment on the much larger segment of consumer goods that China wants to export to the States. That would mean paying higher prices for U.S. commodities, since our strong dollar makes our corn, soybeans, etc. much more expensive relative to buying from Brazil or Ukraine. Yet, that might still be the thing to do – using those purchases to build their reserves over the next four years of the Trump Administration – while appeasing Trump to allow the imports of Chinese consumer goods into the States. It may be one of the reasons why Trump has eased his stance on TikTok, while also talking respectful of Xi and speaking of traveling to China. As for China’s part, we heard unconfirmed rumors on Friday of Chinese corn purchases, while it also appears to be buying modest amounts of U.S. soybeans for its reserves. I wouldn’t expect such a trade agreement – if it happens – to last beyond the next four years while Trump is in office, but it could sustain demand for U.S. commodities over the next several years if it happens. I would not expect this to be a commodity boom for the States, but perhaps enough to keep demand somewhat stabilized.
