As the global trade war heats up, with U.S. allies like the European Union and Japan signing trade pacts and NAFTA falling apart, President Donald Trump will frequently dispatch fiery tweets about the issue.
However, Trump’s tweets on trade matter fairly little for major markets, according to a new research note from Goldman Sachs.
The GS team identified several key phrases — like “trade” and “tariff” — and constructed a daily count of the number of times the president mentioned it on his Twitter feed. They also calculated a 3-day moving average to account for weekend tweets and their impact on the market. Using the data, they ran a regression of the volatility index (^VIX) to see how his tweets may have sparked activity in the stock market.
They found that there was no obvious relationship between the Twitter mentions and the VIX.
The VIX, an index built by the Chicago Board Options Exchange (CBOE), looks at the market’s expectation of 30-day volatility. It’s derived from the implied volatility of S&P 500 index call and put options.
Typically, the VIX will go up when there is more anxiety, fear, and volatility.
Why isn’t the European Union and Canada informing the public that for years they have used massive Trade Tariffs and non-monetary Trade Barriers against the U.S. Totally unfair to our farmers, workers & companies. Take down your tariffs & barriers or we will more than match you!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
Soybeans are an anomaly
The GS note pointed out that there is one commodity in particular that has felt the heat from the tweets — soybeans.
When they looked at daily soybean returns against the index of tweets (while controlling for the Economic Policy Uncertainty Index and the fluctuations in the U.S. dollar), the analysts found that Trump’s tweets had a significant impact on soybeans.
Soybeans have been particularly vulnerable because “it is not possible to completely reroute supplies should China levy tariffs on U.S. soybeans,” the analysts said.
I am in Brussels, but always thinking about our farmers. Soy beans fell 50% from 2012 to my election. Farmers have done poorly for 15 years. Other countries’ trade barriers and tariffs have been destroying their businesses. I will open…
— Donald J. Trump (@realDonaldTrump) July 11, 2018
The team had previously written about how when tensions rose between the U.S. and North Korea over their continued missile tests last year, Trump’s tweets “seemed to matter more for global risk appetite than the missile launches per se.”