If you’ve been wondering–as I have–exactly how much erratic behavior and how many off-the-cuff executive orders it would take to unsettle the global financial markets, today provides, perhaps, an answer. About this much. Over the weekend the Trump administration threw the global airline industry, international norms on refugees, and the U.S. Constitution into chaotic disaster. I don’t know what part of the reaction to the executive orders that President Donald Trump issued on Friday struck the markets as too much, but they sure seem to be saying “This worries us” today.
The Standard & Poor’s 500 stock index closed down 0.6% for the day but riskier U.S. indexes fell more sharply with the NASDAQ Composite off 0.83% and the small cap Russell 2000 down 1.4%.
The CBOE S&P 500 Volatility Index (VIX), which has been hovering near record lows during the post election rally showed a sharp spike today with volatility climbing 12.29% to 11.88, still near the extreme lower end of the VIX’s historical range.
Gold, a traditional safe haven, climbed 0.5% to $1197 a ounce. The 10-year U.S. Treasury ticked higher and yields dropped to 2.49%. The U.S. crude benchmark West Texas Intermediate fell 0.94% to $52.67 a barrel.
It’s hard to say exactly how unsettled overseas markets are. On this they seem to be taking their cues from New York. The iShares MSCI Emerging Markets ETF (EEM), for example, was off just 0.53%, even though emerging markets are frequently among those assets that sell off most quickly when global markets turn fearful. The dollar closed essentially flat against both the euro and the yen. If global markets are taking their lead from New York, I’d expect them to tumble tonight.
Something to watch for at this moment as we try to figure out if this is a one-day blip or something that might more seriously disrupt the post-election rally is what seems to be an emerging tendency by the Trump administration to double-down when challenged. Its reaction to media reports that the crowds at the Trump inauguration weren’t the biggest ever was to go whole hog after the news media and announce a war against the “opposition,” for example.
In the case of this weekend’s orders to block the entry of all travelers–refugees, visa-holders, U.S. residents with green cards–the Trump administration has reacted by ignoring judicial orders to suspend parts of those orders. Customs and Border Patrol agents at Dulles International Airport, for example, refused to allow lawyers to talk with detained travelers–despite a court order–saying “It isn’t going to happen.” Today State Department officials who were circulating a “dissent memo,” the typical way that foreign service officers voice their disagreement with an administration’s actions, were told by White House press spokesman Sean Spicer that they should “either get with the program or they can go.”
So far in its nearly 11 days in office the Trump administration has demonstrated no ability or willingness to defuse a crisis of its own making. If it brings that attitude to the current situation, the market is likely to get more nervous rather than less over the coming days.