Just when President Trump starts to move towards status quo, things start to get hairy. This week, the Wall Street Journal published an interview with the President in which he moved ground on several issues all of which tended towards prior Administration policy. Namely, he stated a view that the US Dollar is too strong, that Fed Chairwoman Janet Yellen may continue past 2018, that he does not intend to label China a currency manipulator, and that he supports the Export-Import Bank. Normally you would think that would work to calm markets. However, this week he did drop a bomb…literally. In an effort to support American Special Forces in the fight against ISIS, the US’s most powerful, non-nuclear bomb was dropped in a rural province of Afghanistan in an effort to destroy a network of tunnels believed to facilitate ISIS troop movement. This move in concert with the military strike in Syria has the investment world thinking about an uptick in geopolitical risk. Oil prices have been pushed higher and the equity volatility index (VIX) has ticked up to around 16 from the unusually low level of 11-12 it has remained in most of the year.
One of the questions brought to bear is what does this mean for Trump’s foreign policy given the campaign rhetoric of “America First.” One report suggested that the Administration has stepped back from approving every military initiative instead giving latitude to senior military officials to act as needed. If that is the case, being aware of Defense Secretary General James Mattis’ concern about the country’s national security, these may be the first of several actions around the world to demonstrate a change in policy from President Obama.