Trump’s tariff u-turn sparks $6.5 trillion rally amid market manipulation claims

Donald Trump can now add another occupation to his business card, that of a top-notch financial advisor.

His social media contribution “THIS IS A GREAT TIME TO BUY!!! DJT,” made while the US market was trading uncertainly was one of the greatest bits of advice ever offered.

Less than four hours later, Trump, this time under his presidential business card, announced a 90 day pause on nearly all of his tariffs.

The reaction was instantaneous – US shares soared by 9.5% or $6.5 trillion in the strongest rally seen since the GFC.

In one day, US markets made back about 70% of the value they had lost over the previous four trading days.

Denial of market manipulation

From this distance, Trump’s actions don’t come close to passing the sniff test and look like one of the greatest examples of market manipulation ever seen.

Predictably the White House denied that Trump had manipulated the markets and pitched his actions as a tariff negotiating tactic but this is a hard message to swallow.

For a start, Trump’s social media message actually used the share market code (DJT) of his social media company Trump Media & Technology Group, the parent company of the president’s social media platform Truth Social.

Whether his intent was to promote buying DJT shares specifically or shares in general with a sign off using his initials was not clear but either strategy would have worked for investors.

Trump Media takes off

Shares in Trump Media zoomed up 22.7%, soaring twice as much as the broader market.

Trump owns 53% of that company, which is now in a trust controlled by his older son Donald Trump Jr, which means he made $671 million from the share rally on that stake alone.

Presumably having the announcement on truth social also cemented its place as an unmissable share trading tool, also boosting its performance, which remains remarkable for a company that lost $650 million last year.

In a broader sense though, the idea of a President seemingly enjoying his role controlling share markets that he also participates in heavily, is certainly a very unusual sight.

Some market watchers labelled Trump’s actions as insider trading but that cannot be the case because he announced his opinion publicly.

Where Trump could get into trouble is if there is ever evidence that he is informing other people about a looming government decision and allowing them to trade before that decision is announced to the broader public.

There remains no evidence of that in this case but Trump should be very careful about rolling out his financial advice business card too often.

Trump has his own rule book

However, as we all know by now, Trump operates under his own set of rules and it seems unlikely that there will be any sort of official investigation into his latest actions.

Whether Trump did engage in market manipulation is a matter of opinion but the fact remains that if people had bought shares when they saw that post, they stood to make a lot of money very quickly.

Trump gave a muddled answer as to when he actually made the decision to pause tariffs, saying only that he had been thinking about it for a few days and arrived at the decision early that morning.

One of the interesting things to emerge from this situation is that Trump changed his mind after watching developments on the bond market – strangely watching an interview with JPMorgan chief executive, Jamie Dimon on Fox Business rather than relying on briefings from Treasury officials.

“I thought that people were jumping a little bit out of line. They were getting a little yippy, a little bit afraid,” Trump said.

“The bond market is very tricky. I was watching it. But if you look at it now, it’s beautiful, the bond market right now. But I saw last night where people were getting a little queasy.”

That is one way of describing a situation in which there was a massive sell-off of U.S. government bonds as hedge funds unwound highly leveraged trades due to massive volatility and rising bond yields.

Markets far from normal

It would be foolish to expect markets to return to an atmosphere of calm, despite the backdown on tariffs.

There is still a significant trade war going on with China with no obvious resolution and the remaining tariff issues have effectively been kicked down the road by 90 days that will come around again quickly enough.

In the interim, no doubt there will be a range of negotiations over tariffs and hopefully a lot of breakthroughs, although the news for a country like Australia which has a trade surplus with the US is less good because we are wearing the flat 10% tariff which is now the same as that applying to most other countries.

As Trump put it: “I’m telling you, these countries are calling us up, kissing my ass. They are. They’re dying to make a deal.”

That might be so but it remains an awkward negotiating tactic to effectively cast the other side as weak and desperate.

Australia now ‘running up the score’ for the US

Certainly, Australia should hang tough after Donald Trump’s trade chief Jamieson Greer admitted that the US was “running up the score” by imposing tariffs on Australia despite already enjoying a trade surplus with the country.

That is indeed an insulting and arrogant position to hold, particularly in the context of our broader strategic and defence alliance under which we are paying dearly for future access to nuclear submarines which may or may not materialise.

By far the biggest battle will be between the US and China, with trade between the two countries effectively now halted by prohibitive tariffs in both directions.

Plenty of pain for US and China – and investors

There will be significant pain on both sides of the ledger as that trade winds down and it remains unclear whether China’s President Xi Jinping or President Trump will be the first to blink in these continuing negotiations.

While markets now have 90 days for negotiations to happen, the universal 10% tariff applying across the board will still start to slow the already uncertain US economy and raise the US inflation rate, adding further significance to the negotiations.

In terms of world financial markets, it is way too early to think that the volatility is now over.