JP Morgan Creates "Volfefe Index" to Measure Market impact of Trump Tweets

JPMorgan Launches 'Volfefe Index' to Track how Donald Trump's Tweets Impact Markets

Trump tweets increasingly moving markets: report

The types that have the largest sway on the market place emphasis on trade and the Federal Reserve, and JP Morgan states they generally consist of the text "China", "billion" and "terrific".

To measure how much impact Mr Trump's unpredictable tweets have on USA interest rates, investment bank JP Morgan has created the "Volfefe index".

The report delves into specific details of Trump's tweeting habits: he has an average of 10 tweets a day and produced more than 10,000 since his 2017 inauguration.

"The subject of these tweets has increasingly turned toward market-moving topics, most prominently trade and monetary policy".

Trump's tweets move markets, particularly regarding the trade war, which whipsaws indices back and forth with seemingly every word uttered, positive and negative.

The index's name presumably stems from Trump's infamous - and still unexplained - tweet in 2017 that included the nonsensical word "covfefe". "And you will be extremely shocked that the numbers are many, many times what you think", Mr. Trump said.

In those days, when the US President often writes on Twitter, government bond yields are falling, and the days with low activity trump the social network, the profit is increasing.

In the report, JP Morgan analysts use machine-learning techniques and their own volatility model to show how the president's 280-character missives serve to raise investors' expectations for future shifts in the bond market.

In fact, the report by the USA multinational investment bank and financial services provider found almost 146 such tweets in 2018-19, suggesting the effect of tweets on the market is a real one. It then gauges the odds of a given tweet moving the market based on the increased volatility in yields seen after his prior tweets.

According to the bank, the index is no gimmick and there is indeed a "measurable fraction" of implied volatility observable through interest rate derivatives, especially those linked to shorter-term rates of two to five years.

Analysts at JP Morgan noted that while their current analysis was limited to USA interest rates, such an exercise was easily transferable to equity or currency markets. Consider August 1, when Trump sent out a tweet at 1.26pm.

The US dollar - whose relative strength against major currencies has drawn much of the president's ire - has often weakened against the euro and the Japanese yen in reaction to the president's tweets about the greenback, Citigroup analysts said in a Friday note describing the president's "jawboning". Tracy Alloway reports on "Bloomberg Daybreak: Middle East".

"My only question is, who our bigger enemy, Jay Powell or Chairman Xi?"

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