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How Donald Trump’s COVID-19 Diagnosis Affects Market Sentiment

As if 2020 could not get any more dramatic and opportunistic for traders. The news of the diagnosis of the U.S President Donald Trump and First Lady Melania Trump having COVID-19 has injected a new dose of uncertainty not only in the financial markets but on the geopolitical stage. 

There are genuine concerns that the president of the United States may become incapacitated, requiring him to transfer power. Although Trump has attempted to force the narrative to radiate positivity and his personal resilience, many political commentators are questioning the authenticity of the recent messaging. 

The Initial Announcement of Trump’s COVID Diagnosis

On Friday the 2nd of October, Donald Trump announced on Twitter that he and Milania Trump tested positive for COVID-19. At 18:16 Eastern Time, Trump boarded his helicopter to be lifted to Walter Reed military hospital. These events took place after the closing bell; who knows the carnage this development may have triggered on Wall Street, or more accurately, the couches and guest rooms of the Tri-State suburbs where most investment firms are still being run from today.

Throughout the weekend, more developments, mixed messages and speculation arose. Some questions about the president’s treatment were addressed with a high degree of clarity while others were smothered with a fog of ambiguity. Let’s check how the markets felt about the recent events.

https://twitter.com/realDonaldTrump/status/1311892190680014849?ref_src=twsrc%5Etfw

Trump’s COVID-19 Impact on Markets

It was only to be expected the drama would not just hit the U.S stock markets but would send shockwaves around the world, especially during an election month and alongside the significant economic issues every country is facing. Just last week, we considered how a fresh round of coronavirus lockdowns might affect currency markets, and this development puts a new spin on things.

The Stock Market and POTUS COVID-19 Diagnosis

The announcement of the President of the United States testing positive for COVID-19 seemed to have triggered a knee jerk reaction to the US Indices. Immediately after the diagnosis of the President was made via Twitter, the S&P 500 index fell 623 Pips or 1.85% in just 45-minutes. Similarly, the Dow Jones index fell 521 Pips or 1.88% in the same period. Both Indices went on to redeem themselves throughout the course of the day, closing slightly lower than the previous day.

S&P 500 After Trumps COVID Diagnosis
S&P 500 30-minute chart highlighting the recent impact Trump has had on US Indices.

What caused more damage to the markets was not Trump’s illness, but his decisions when he got back into the swing of things. After the President returned to the White House, he made an out of the blue announcement; he ordered negotiators to cease stimulus package discussions until after the election. 

Between 14:45 and 16:45 E.T the S&P 500 dropped 908 Pips or 2.64% and the Dow Jones also retracted 701 Pips or 2.47%. This seems to hint that the markets care more about monetary policy than the president’s actual health.

In contrast, when President Eisenhower suffered a heart attack on the 25 of September 1955, the news had a far more severe impact on the market. Immediately after the news was released, the market fell by 6% and went on to drop a total of 10% in the weeks that followed.

Forex, Gold & Commodities

Gold traded at higher prices after Trump’s diagnosis of COVID-19. It was hard to find any strong sentiment in the precious metals market, the price of gold against the USD essentially went the exact opposite of US Indices. These moves seem to be a symptom of how Indices related as opposed to a change in sentiment related to gold. These movements pushed gold past the $1,900 key level a couple of times, but still, as of Wednesday the 7th of October at 15:30 E.T gold is trading below the $1,900 level. It seems this dire news has not blown air into what many have called a gold bubble.

The forex markets also reacted to the news of Trump’s diagnosis. The US dollar, Swiss franc, and Yen considered as safe-haven currencies did indeed strengthen due to a risk-averse reaction, but there are no visible long term effects from this news. 

Considering the news broker during the Asian trading session, little effects were seen on the Euro, but the most dramatic movement was on the USD/JPY pair which fell 70 Pips (0.92%) in a single hour. The Japanese Yen also strengthened against the Australian dollar, New Zealand dollar, Singapore dollar and others.

Brent Crude Oil saw modest losses of just 3% on the news after already facing a lot of selling pressure towards the second half of the week.

Conclusion

Unfortunately, because of the president’s age, weight and preexisting conditions, there is a chance that just because he has been discharged, we haven’t heard the end of this story. Not to mention the dozens of White House employees and senior members of the Republican Party are now facing the same diagnosis as Trump. 

The idea that Donald Trump has contracted COVID-19 has intensified the growing uncertainties around the U.S. election, which has a wide range of economic implications. His illness could cause issues with the election and the current campaign initiatives that are well underway. It’s also worth noting that Donald Trump wouldn’t be the first president to be opaque about the state of his health, after all, Franklin D. Roosevelt hid the fact he used a wheelchair for all of his presidency.