Financial markets are starting to have doubts about Donald Trump. The euphoria that sent share prices on Wall Street to record levels has quickly dissipated amid fears that the new president is dangerously unpredictable.

Evidence that Trump does not really have a clue about what he is doing is mounting by the day. The failure to get Congress to agree to a repeal of Obamacare was the first sign of trouble, since it raised questions about whether the White House would be able to pass an economic stimulus package.

But there has been more to unsettle investors since then – much more. First there was the U-turn over Syria, then the sabre rattling over North Korea. Now Trump has decided, in flat contradiction of what he said on the campaign trail, that China is not gaining an unfair trade advantage through the manipulation of its currency.

The kindest interpretation of this latest flip-flop is that Trump wants to keep Beijing sweet while the US launches military action against North Korea, although this prospect is not exactly designed to make investors any less nervous. A more accurate assessment of Trump’s first three months in the job is that he is making it up as he goes along.

Not only did Trump backtrack on China’s alleged currency manipulation in an interview with the Wall Street Journal, he hinted that Janet Yellen might after all get a second term in charge of the Federal Reserve and said he thought the dollar was getting too strong.

On this last point, at least, there was some sense in what the president had to say. It is all very well sabre rattling about the imposition of tariffs and putting taxes on imports but a rising currency would blunt the impact of any protectionist measures by making US exports dearer. That’s assuming, of course, that there will be any protectionist measures. On current form, there probably won’t be.

President Donald Trump and President Xi Jinping. Photograph: Jim Watson/AFP/Getty Images

Trump appears to think that the strength of the dollar is a vote of confidence in him. If only. The greenback is strong because the Fed is the one major central bank in the world that is raising borrowing costs, and investors have been assuming that the US central bank will accelerate the pace of interest rate increases in response to a Trump-inspired pick-up in growth. That scenario is starting to look less likely.

The response in the currency markets to Trump’s latest comments was predictable. Traders took their signal from the White House and dumped the dollar. More significantly, perhaps, demand for gold and the Japanese yen, traditional safe havens in times of uncertainty, rose to their highest level since the US presidential election last November.

Share prices remain close to their record highs but for how long? Cannier investors have taken one look at Trump’s Dr Strangelove-style foreign policy antics and decided to park their money elsewhere. US defence stocks look like a decent bet; the rest of the stock market does not. Caveat emptor.

Lenders getting Bank’s message on unsecured debt

Governors of the Bank of England have never had trouble making their feelings known. Once upon a time they did it by raising the gubernatorial eyebrows. These days they do it through the deliberations of the financial policy committee. The net result is the same. Lenders sit up and take notice.

The FPC’s concern is that too much unsecured lending is going on: too much credit card debt; too many payday loans; too many cars being bought on attractive-looking finance deals. It wants lenders to be more cautious because it knows that all the conditions are in place for a credit card crash: ultra-low interest rates, a strong labour market, lenders vying with each to offer the tastiest deals and inflation rising faster than wages. There is a temptation for consumers to use debt to bridge the gap between their incomes and their spending aspirations, and plenty of lenders are only too willing to feed the habit.



Lenders seem to be getting the message. The Bank’s latest credit conditions survey marks a step-change. After years of making it easier to take on debt, the availability of credit fell in the first three months of 2017 and is expected to fall further in the second quarter. The result will be fewer people getting into financial trouble, less unaffordable spending and a more sustainable economy.

That’s the good news. But the survey also shows that loans to small- and medium-sized businesses have been falling, not because lenders are making it harder to borrow but because firms don’t want to invest. That’s bad news.