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Can’t figure out Trump’s policies? Markets can’t, either, as ‘the grown-ups in the room’ depart

Can't figure out Trump's policies? Markets can't, either, as 'the grown-ups in the room' depart

Briefing highlights

  • Markets try to gauge Trump policies
  • Markets at a glance
  • Quebecor posts drop in quarterly profit
  • Canadian home prices dip in February

'The grown-ups in the room'

Investors can be forgiven for not knowing exactly where President Donald Trump is heading as he continues to lose "the grown-ups in the room" in his administration.

That's causing angst across markets as the issues pile up, from the departure of key officials to the threat of a trade war.

"With two profile departures in a matter of days, it could be argued that the Trump administration has lost two of the grown-ups in the room when it comes to economic and foreign policy," said CMC Markets chief analyst Michael Hewson, referring to Tuesday's ouster of Secretary of State Rex Tillerson and last week's loss of top economic adviser Gary Cohn.

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"Having come off the back of a strong run of gains, yesterday's events afforded equity investors the perfect excuse to indulge in a spot of profit-taking as both European and U.S. equity markets finished the day lower," he added.

"Only time will tell whether the new appointments are able to regain the confidence of investors, particularly at a time when relations between the U.S. and EU are under strain over the subject of tariffs."

Here's how markets are doing today.

"With Tillerson out the door, the market is assuming that Trump is aiming for a more aggressive foreign policy, enough to send a chill through the markets," said Jasper Lawler, head of research at London Capital Group.

Given the two departures in so little time, added CMC's Mr. Hewson, "it is also becoming increasingly difficult given the constant revolving door nature of the arrivals and departures in his administration to get a sense of which way the President is leaning on any of his economic policies."

The Canadian dollar, meanwhile, is gaining back some lost ground today, though it still sits below the 78-cent mark it hit just a few days ago.

The loonie has so far traded between 77.1 and 77.3 US cents, having been moved by both Mr. Tillerson's departure and comments from Bank of Canada governor Stephen Poloz.

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"USD/CAD has moved aggressively higher, first in response to President Trump's dismissal of U.S. Secretary of State Tillerson, then compounded by a speech from Governor Poloz, which was interpreted as dovish-leaning by the market," said Elsa Lignos, Royal Bank of Canada's global head of foreign exchange strategy in London, referring to the U.S. versus the Canadian dollar by their symbols.

"He said that Canada's capacity expansion phase was 'worth nuturing' and discussed the role the BoC may play in fostering increased supply," she said, noting the key phrase from Mr. Poloz:

"It should be clear that there are likely to be significant economic benefits associated with allowing the economy to find its way to a higher, more productive economic equilibrium, if this can happen within our inflation-targeting regime. We cannot know in advance how far the capacity building process can go, but we have an obligation to allow it to occur."

This shot down the loonie as investors bet that the central bank would be less aggressive in raising interest rates - they've come to believe that, anyway - and "market positioning was caught short," Ms. Lignos said.

"But we would caution against getting carried away with over-interpreting Poloz's speech - monetary policy remains stimulative even after the three hikes and we see the speech as justifying why policy isn't neutral, given the BoC's own assessment is that the economy is operating roughly at capacity."

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