The Rise Of Twitter
The social-networking platform Twitter has revolutionised the way in which individuals interact with one another. Through the dissemination of content via a 140-character microblog (known simply as a "tweet"), users can report news items, advertise their wares or simply poke fun at the hot button issue of the day.
Since its inception in 2006, Twitter has experienced robust growth in usership and popularity. As of January 2017, Twitter is ranked as the fourth-largest social network in the world behind Facebook, Google+ and Instagram. The following metrics regarding the size and scope of Twitter's client base provide context to its potential influence:
- 100 million daily users
- 320 million active monthly users
- 500 million tweets sent per day
- 77% of all Twitter accounts originate outside of the U.S.
With such an extensive reach, Twitter has become an invaluable communications tool for politicians looking to directly address their constituents on matters of policy and culture.
The 45th President of the United States of America, Donald J. Trump, has used Twitter to address the public on a wide variety of topics, drawing praise from advocates and criticism from opponents. Trump's frequent use of Twitter in the addressing of individual companies, countries and future U.S. policy towards commerce have certainly made his Twitter feed an influential market moving force.
Presence Of World Leaders On Twitter
In the arena of international politics, Twitter is frequently used by candidates seeking election to public office in addition to established leaders involved in active governance. Listed below are a few examples of the 66 prominent world leaders who actively engage their colleagues and constituents through Twitter:
- Nicolas Sarkozy: Former President of France
- Dmitry Medvedev: Prime Minister of Russia
- Vladimir Putin: President of the Russian Federation
- Hugo Chavez Frias: President of Venezuela
- David Cameron: Former Prime Minister of the United Kingdom
- Benjamin Netanyahu: Prime Minister of Israel
In the United States, Twitter has exploded in popularity among political figures. It has become a necessary part of public life, with the sitting president and nearly every member of Congress actively participating. Many attribute its ascent within the political arena to be a product of former President Barack Obama's groundbreaking use during his administration, specifically amid the 2008 and 2012 presidential election cycles.
The results garnered by Barack Obama's implementation of Twitter have served as an illustration of the social-media platform's value to a candidate for public office. Accordingly, the 2016 U.S. presidential candidates invested considerable resources into developing a robust social media platform, and created a vast network of followers on Twitter:
- Donald Trump: 21.8 million
- Hillary Clinton: 12.6 million
- Bernie Sanders: 5.07 million
- Ted Cruz: 2.03 million
As a point of reference, former U.S. President Obama has amassed 83.3 million followers.
Ethical Debate Over Presidential Twitter Use
Twitter's relatively short timeline as a major source of media has made its influence upon global business and politics a frequently debated topic. With such a large avenue for members of Congress and the President of the United States (POTUS) to instantly release news and opinion, the potential impact of an unexpected tweet upon various global financial markets has become a voraciously debated issue.
The history of the POTUS participating in social media via Twitter is brief. President Trump is only the second sitting president to actively participate on the platform, with the first being his predecessor Barack H. Obama. President George W. Bush did not engage in the early incarnations of Twitter during his second term, while prior presidents Bill Clinton and George H.W. Bush did not have the opportunity (both now have active accounts).
Questions pertaining to the ethics of releasing a personal statement that may reflect future economic policy surround live tweeting during market hours. An untimely tweet or offhand comment may have a large impact upon intraday volatilities facing futures, equities or forex markets.
Twitter's Impact On Financial Market Volatility
As a general rule, financial markets are not receptive to surprises and uncertainty. Twitter has the ability to supply both, periodically spiking short-term volatilities facing a wide variety of openly traded financial instruments.
A prime example of this phenomenon occurred in 2013, through a fictitious news release conducted via Twitter regarding the safety and health of the POTUS. A hacked Associated Press (AP) Twitter feed falsely reported President Obama and other White House staffers had been injured as a result of two separate explosions. Upon release of the tweet, U.S. equities markets plunged. Within minutes, the Dow Jones Industrial Average (DJIA) dropped 143.5 points, with the S&P 500 temporarily losing an estimated US$136 billion in value. Although the markets recovered in a somewhat-short order, traders and investors went for a wild ride. Many experienced substantial capital loss due to market conditions created by the artificial stimulus.
While the hacking of official Twitter accounts and falsifying of news stories is an obvious ethical foul, the question remains if it is proper for individuals privy to sensitive financial data to release personal opinions and information via Twitter.
Is it ethical for a sitting president, member of the Federal Reserve or CEO of a publicly traded company to tweet about topics that can move markets? Could this be a case of market manipulation?
Impact On Government Contractors
One of the most frequently debated aspects of Donald Trump's successful run to the White House, and subsequent administration, has been his personal Twitter use. Trump has been a user since 2009, amassing more than 20 million followers and issuing more than 30,000 tweets.
A strong advocate for Twitter, Trump cites its use as a great way to address the citizens of the U.S. directly without the need for "biased" mainstream media outlets. However, critics maintain that the office of the POTUS should refrain from tweets that are personal in nature, incendiary or inflammatory. No matter if one is a Trump supporter or detractor, it is difficult to ignore the impact that his Twitter feed has had upon specific equities valuations.
The post-election month of December 2016 provided several illustrations of the degree of influence Trump's tweets had on the stock value of government contract holders, specifically those participants in the aerospace and defense industries.
A Trump tweet dated 6 December 2016 addressed his concerns pertaining to Boeing's government contract to build a future Air Force One. He wrote: "Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!" As a result of the tweet, Boeing stock immediately realised a 1% drawdown in value based on speculation that the company may lose favour with the new administration, voiding current government contracts. The correction proved to be temporary, with Boeing's stock quickly rebounding to close the session unchanged.
On 12 December 2016, Trump tweeted the following statement regarding Boeing competitor Lockheed Martin's commitment to develop fighter jets for the U.S. Armed Forces: "The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th."
This statement immediately sent shockwaves through the aerospace industry, shaking the equity valuations of several key players:
- Shares of Lockheed Martin initially dropped 4%, an estimated value of US$4 billion. By the end of the trading session on 12 December, losses were cut in half, closing down 2%.
- Shares of Boeing initially dropped .72%, but traded to a positive .43% by session close.
- Shares of General Dynamics fell 2.87% before rallying to close down .94% on session close.
- Prominent defense industry ETFs PowerShares Aerospace & Defense Portfolio and iShares U.S. Aerospace & Defense both sustained losses eclipsing 1% for the session.
In another tweet, dated 22 December 2016, Trump served to again provide an uneasy trading atmosphere for the shareholders of defense contractors Boeing and Lockheed Martin: "Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!" In much the same fashion as the previous statements, a volatile trading atmosphere was created for the two aerospace and defense contractors:
- Lockheed Martin shares fell 2%, an estimated value of US$1.2 billion.
- Boeing stock increased .5% during immediate trading.
Impact On Publicly Traded Companies
The impact of President Trump's tweets on the entire U.S. equities market is an ongoing topic of discussion throughout the financial community. Traders and investors alike have become increasingly cognisant of the immediate influence a presidential tweet is capable of delivering to the market.
Seemingly no company is safe from the short-term pricing volatility created by a Trump tweet. While defense contractors like Lockheed and Boeing certainly depend on U.S. government contracts for revenue, most publicly traded companies do not. No matter the scope of an entity's core business, if it is publicly traded, then statements issued by Trump via Twitter can impact valuations.
One study put forth by the Wall Street Journal, known as the "Trump Target Index," addressed this concern. According to the study, 12 stocks were substantially impacted by Trump's Twitter releases during the election year of 2016 through the first quarter of 2017. While each stock initially experienced a poignant devaluation, there was a typical pattern of rebound and subsequent recovery of price.
Corporate valuations have shown the ability to stabilise over the long-run, but not all companies have responded to the stimulus positively. For instance, Toyota Motor Corporation's (ADR) stock price has undergone a sustained devaluation. Trump's pre-inauguration tweet concerning Toyota's business operations caused a pronounced stir: "Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax."
The fallout experienced by Toyota has been considerable:
- Toyota stock saw immediate devaluation, losing 1.2 billion in market cap in the five minutes following the tweet.
- Over the next six months, Toyota stock lost over 5%, around US$12 billion.
American retailer Nordstrom (JWN) has also been the focus of Trump's tweets, though it has fared substantially better than Toyota.
Following the removal of Ivanka Trump's fashion line from their stores, President Trump issued a statement via Twitter: "My daughter Ivanka has been treated so unfairly by @Nordstom. She is a great person--always pushing me to do the right thing! Terrible!"
In contrast to Toyota, the negative effects were fleeting:
- Nordstrom stock fell 1% in the minute following the tweet.
- Nordstrom closed the session posting a gain of 4.1%.
Internet commerce giant Amazon (AMZN) has also found itself the subject of the Trump/Twitter phenomenon. In an August 2017 tweet, Trump reinforced his rhetoric towards preserving the manufacturing sector of the U.S. economy through a critique of Amazon's business practices: "Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt-many jobs being lost!" The tweet was the latest in a series that questioned Amazon's adherence to tax laws, political influence and overall impact on U.S. retail.
After this, Amazon experienced the following:
- Amazon stock fell 1% immediately after the tweet
- For the session, Amazon rallied to close down 0.5%
- The initial spike in selling temporarily cost the company US$5.7 billion in market share
Nordstrom, Toyota and Amazon are not the only public companies that have been included in President Trump's Twitter dialogue. Listed below are a few other financial heavyweights that have been directly mentioned by Trump on Twitter:
- Intel (INTC)
- Aetna (AET)
- Humana (HUM)
- Pfizer (PFE)
- Merck (MRK)
- Anthem (ANTM)
It's important for market participants to be aware of the potential for increased volatilities facing individual equities related to a Twitter release. While the long-term implications of such sentiments originating with the POTUS may be insignificant, the short-term variations in pricing and market value may enhance risk to those traders with short investment horizons or large positions on margin.
Currency Exchange Rate Volatility
The valuation of a country's currency is dependent upon many factors that relate to its adopted monetary policy, domestic economic health and growth prospects. Accordingly, any statement made by the POTUS regarding a change in the diplomatic and economic relationship between the U.S. and another country may have a widespread impact upon global currency values. In the event that a Twitter release is the conduit by which the statement is made, a rapid and substantial reaction may be experienced by the forex market.
Perhaps the currency valuation most affected by Trump's twitter activity has been that of the Mexican peso (MXN). Mexico's economic relationship and business dealings with the United States was a notable theme in the 2016 U.S. presidential election. Trump's public views towards Mexico during the election and since then have signaled a change in U.S. policy towards the areas of immigration and commerce.
On 3 January 2017, Trump addressed the auto industry's involvement in Mexico via his Twitter feed: "General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!"
The fallout from the statement was multifaceted:
- GM shares initially traded up 1.69% after the announcement.
- Competitor Ford announced plans to cancel a proposed production facility, which was slated to inject US$1.6 billion and 2,800 jobs to Mexico.
- The USD/MXN traded down 2% in the immediate aftermath of the tweet to a record-low of 21.619 pesos to the dollar.
- During extended trading, the MXN dropped 3.5% against the USD, triggering intervention by Mexico's Central Bank (Banxico).
Ultimately, Trump's tweet signaled a potential change in the business practices that are to be allowed under his administration. As a result, the domestic currency of an economic beneficiary experienced a dramatic reaction in terms of volatility and valuation. Albeit indirectly, Mexico's economic prospects came into question by forex traders and investors, with the end result being a depreciation of the domestic currency.
Impact On Amazon.com And The U.S. Postal Service
In March 2018, President Trump took to Twitter in condemnation of the business practices of online retail monolith Amazon.com (AMZN). Echoing the talking points of his 2016 presidential campaign, he cited unfair tax advantages and dealings with the U.S. Postal Service (USPS) as being reasons for governmental intervention against Amazon.
Over the course of March and April 2018, Trump tweeted extensively on the subject. Each tweet spiked short-term volatility as uncertainty over future government actions against Amazon spread throughout equities markets.
The following are several high-profile tweets from President Trump during this period and the subsequent market fallout:
29 March, 7:57 AM EST: "I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss the U.S.), and are putting many thousands of retailers out of business!"
Intraday volatility toward shares of AMZN ensued. Upon the market open, AMZN fell more than 3.8% in early session trading. Later in the day, comments from the White House Press Secretary soothed investor concerns. The early losses were erased, with share price rebounding to a gain of 1.1% at the closing bell.
3 April, 9:55 AM EST: "I am right about Amazon costing the USPS massive amounts of money for being their Delivery Boy. Amazon should pay these costs (plus) and not have them bourne by the American Taxpayer. Many billions of dollars. P.O. leaders don't have a clue (or do they?)!"
The timing of Trump's tweet came shortly after the open of market hours, bolstering participation in AMZN. Shortly before the tweet, AMZN traded higher, gaining 1.4% on the early session. In the minutes after the comments posted to Twitter, AMZN traded into negative territory before rebounding to close the day in the green.
Trump's commentary also had a substantial impact on the intermediate-term valuations of AMZN stock price and market capitalisation. In the weeks after the initial tweets, AMZN stock price plummeted 7%, creating a loss of more than £35.5 billion in market cap. In total, concerns over pending regulation prompted AMZN shares to fall more than 12% from the all-time high levels established in mid-March.
The losses in AMZN fostered skepticism versus the entire tech sector. As a result, the NASDAQ experienced considerable downside volatility amid the heavy periodic selling of AMZN stock. During the late March-early April 2018 Twitter exchange, the NASDAQ witnessed heightened investor angst illustrated by a 2% decline in marketshare.
Concerns Over A U.S./China Trade War
March 2018 proved to be a challenging time for U.S./China trade relations. Increased governmental regulations and new tariffs on select imports served to undermine the existing economic partnership. The U.S./China two-way trade dynamic is a staple of the world economy, with annual valuations in the billions of pounds:
For 2016, the aggregate U.S. goods and services trade with China totaled US$648.5 billion.
For 2016, the two-way U.S. goods trade with China totaled US$578.2 billion.
Concerns over a potential U.S./China trade war were reinforced on 2 March 2018 when President Trump took to Twitter:
"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!"
The tweet raised the eyebrows of traders and investors, prompting a widespread selloff in U.S. equities.
On the New York Stock Exchange (NYSE) open following the trade war statement, the Dow Jones Industrial Average (DJIA) fell 300 points reflecting the prevailing negative sentiment. However, the sell off was short-lived. U.S. equities recovered quickly, with the DJIA paring losses to close down 71 points for the session.
International equities also showed considerable fallout amid trade war concerns and Trump's tweet. Extensive session losses in several leading global indices were sustained in the period surrounding the tweet:
|Country||Market Index||Percentage Loss|
|Hong Kong||Hang Seng||-1.5%|
|United Kingdom||FTSE 100||-1.5%|
Trepidation over a budding trade war spilled over into the currency markets as well. Citing concerns that tariffs and restrictions were likely to spread throughout international finance, forex valuations fluctuated dramatically.
Following the "trade wars are easy to win" comment via Twitter, immediate losses were sustained by the United States dollar (USD). Conversely, safe-haven currencies performed well, led by the Japanese yen (JPY) and Swiss franc (CHF).
Organisation Of Oil Exporting Countries (OPEC)
Until mid-April of 2018, President Trump's Twitter use was focused on the business practices of individual companies and foreign governments. After a spike in global crude oil pricing, Trump took to Twitter in condemnation of the Organisation of Oil Exporting Countries (OPEC).
On 20 April 2018, President Trump tweeted the following message facing OPEC and rising oil prices:
"Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!"
The tweet was in response to prolonged production cuts adopted by OPEC and several non-OPEC nations from January 2017 until the end of 2018. In total, 21 countries adhered to the limited production policy, prompting an aggregate reduction of 1.8 million barrels per day. The decrease in the oil supply chain was led by record cuts in Saudi Arabia, totalling 486,000 barrels per day.
Amid the OPEC reduction, the value of both West Texas Intermediate (WTI) and North Sea Brent (Brent) crude oil rose precipitously. For the first quarter of 2018, Brent crude oil posted a gain of 4% while WTI crude rallied to more than US$6.00 per barrel for the same period.
While intermediate-term trends in oil pricing remained bullish, the president's Twitter activity caused traders to evaluate the impact of potential U.S. government intervention within global oil markets. In the minutes after Trump's tweet gained the attention of traders and investors, Brent crude oil rapidly fell by 0.6% and WTI lost 0.7%. However, by the end of the trading session, each had regained post-tweet losses and closed in the positive.
As observed in currencies and equities, President Trump's Twitter feed acted as a catalyst for immediate participation in several crude oil futures markets. While the OPEC tweet did little to fundamentally shift the global valuation of oil, it brought uncertainty to the marketplace. The result was a period of short-term volatility facing WTI and Brent crude futures, followed by a return to normalcy by day's end.
In the early fall of 2018, President Trump's Twitter feed came alive lauding the fulfillment of a campaign promise. The renegotiation or outright U.S. withdrawal from the North American Free Trade Agreement (NAFTA) was a primary focus of Trump's 2016 bid for the presidency. Subsequently, NAFTA reformation became a reality upon the creation of the United States Mexico Canada Agreement (USMCA).
Crafting the USMCA took more than 14 months and included extensive talks between the U.S., Mexico and Canada. Earlier in the year, the U.S. and Mexico penned a fresh trade deal, with Canada electing to hold out for better terms. Upon Canada agreeing to enter USMCA on 1 October 2018, Trump issued a series of tweets during the early morning hours unofficially announcing the deal to the world:
"Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada Agreement, or USMCA. It is a great deal for all three countries."
As the tweet gained circulation throughout the forex, unexpected short-term volatility became apparent across the majors. Traders piled into the market on the side of the Loonie, relieved that a resolution came to ongoing U.S./Canada trade tensions. As a result, the USD/CAD fell more than 50 pips in the hours following the USMCA tweet. The immediate negative price action proved to be a primary catalyst for a bearish USD/CAD forex session.
For consumers, Twitter has become one of the most popular methods of acquiring breaking news, sharing opinion and self-promotion in the world. As a tool by which political figures are able to directly reach the masses, Twitter is an invaluable asset.
It remains to be seen if President Trump will continue to issue public statements regarding governmental contract holders and his intent to restructure current trade deals via Twitter. However, it is undeniable that Trump's tweets have the ability to provide an abundance of short-term volatility to corporate equities and international currencies throughout the marketplaces of the world.
Within the current digital environment, market participants are capable of conducting trading operations at near light speeds. It stands to reason that any information release from an official source such as the POTUS has the potential to create unpredictable market fluctuations. While Trump's individual tweets may remain unpredictable, being aware of the release and which financial products are most sensitive can greatly limit risk for investors and traders alike.