US President Donald Trump addressed the Congress for the first time on Tuesday. His speech revived many of his campaign themes but offered little new details on policies. There were also a few major omissions during the speech – corporate tax rate cut and relaxation of financial regulation were not mentioned.
Trump’s speech had a more conciliatory tone to some of his previous speeches. During his speed, the President said, “What we are witnessing today is the renewal of the American spirit. Our allies will find that America is once again ready to lead. All the nations of the world – friend or foe – will find that America is strong, America is proud and America is free.” The speech outlined Trump’s agenda, which seems to centre on strong national defence, strong enforcement of the immigration laws, and the repeal and replacement of Obamacare.
Jitters on the markets
The Wall Street has been performing strongly ever since President Trump took office. His promises of tax reform, simpler financial regulations and boost in infrastructure spending have caused main indexes to jump up to record highs.
As the speech approached, markets started to feel a little nervous. Investors were anxious about the kind of details Trump would offer if indeed he would offer any. Erik Wytenus, global investment specialist at JP Morgan Private Bank, told the Business Standard, “If he gives minimal detail this evening, then perhaps we might get a little bit wind out of the sails of this recent equity move”. The main US indexes did suffer relatively small falls ahead of the speech and small jitters during it.
On the other hand, the foreign currency markets have not been as enthusiastic at any point of the presidency. Trump’s aggressive talk of trade re-negotiations has meant the US dollar has been lower by over 3% since the start of January.
Policy details remain unknown
In terms of President Trump’s plans for reform of financial regulations and taxation, the details remain unknown. During the speech, Trump did mention taxes on a few occasions. He re-committed to his plan of providing tax relief for the middle-class Americans. While he didn’t mention the border-adjusted tax directly, he did say, “My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.”
More notably to the investors and analysts was the lack of mentioning the corporate rate tax. President Trump has previously suggested the tax rate could be slashed to 15% but the plan is struggling to gain support in Congress – analysts are having trouble finding how the administration would be able to pay for it.
Furthermore, there was no mention of relaxing the financial regulations. The subject of regulations has been an issue private equity firms are keeping a close eye on.
For now, the markets and investors will need to continue to sit tight and see what the next weeks have on offer. Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, summed up the current situation well when talking to Bloomberg. “Markets have been patient, have been optimistic, and will continue to be for some time at least. We’re still not that far into this thing,” Wren said.