‘Volfefe Index’ to measure how Trump’s Twitter musings move U.S. markets

J.P. Morgan analysts create Volfefe Index to understand Donald Trump’s attempts to move markets with tweets

The name is a mashup of the words volatility and "covfefe", an apparent typo the president tweeted in 2017 that caused a stir.

Trump's tweets, which have in recent months veered toward market-sensitive topics such as trade and monetary policy, have increasingly moved USA rates markets, analyst Munier Salem said in a note on Friday.

Trump's most market-moving tweets dwell on trade, and, to a lesser extent, monetary policy - with the words "China", "billion", "products", "dollars", "tariffs" and "trade" making the top list, the JP Morgan analysts found.

The analysts found that Trump's tweets have significantly increased volatility. US media reports are raising questions after Vice President Mike Pence stayed at a Trump property during his recent trip to Ireland.

The president's tweets have included a direct Fed reference 20 times over the past month.

US President Donald Trump, pictured (left) with Chinese leader Xi Jinping in June 2019.

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In their official report, it was noted that "the stewards considered this to be a unsafe incident". The only penalty more severe is a black flag, which denotes an instant disqualification.

However, most of Trump's tweets still fail to make an impact, with just 146 of around 4000 sent during market hours since 2018 moving the market.

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. And there's little sign traders are growing numb to these messages.

US President Donald Trump's tweets - especially on the US-China tariff war and US central bank's interest rate decisions - have had huge effect on the global financial markets, leading to wild swings in the prices of stocks and bonds. "We can use this dataset to performed a supervised machine learning exercise - specifically we can train a classifier to infer how likely each tweet is to move markets", the JPMorgan report said in a note dated September 6. That means more opportunities for tweets that move markets, although only some of them actually do.

JPMorgan and Citigroup aren't alone in attempting to calculate the impact of the president's Twitter activity on markets.

According to Bank of America Merrill Lynch, days Trump tweets the most are generally negative for stock market returns. Days with fewer presidential tweets improve the yields of government bonds on average five basis points. The S&P 500 also stays properly over in which it was in advance of Trump's 2016 election, up nearly 40 per cent. Only the headline has been changed.

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