By Michael Every of Rabobank
And They All Lived Happily Ever After(?)
Once again, an awful lot just happened, even by 2025 standards, and while some might be away with the faeries as a result, I still things as very Grimm.
As Tuesday saw the Wall Street Journal warn that the US Dow was heading for its worst April since the 1929 Great Depression, which fits the present zeitgeist, in Washington D.C. we got a flurry of developments:
President Trump said he doesn’t intend to fire Fed Chair Powell - which he can’t anyway. And he may not even want to if he could as it’s useful to have a scapegoat for anything that goes wrong. Markets loved the prospect of going back to a world where they can savagely criticize, and lean against, central bankers but elected officials can’t; let’s see if they proceed to price for the Fed cutting rates ahead in exactly the manner Trump was talking about.
Elon Musk floated that he’s about to step back from DOGE from next month, only spending time wielding a chainsaw a few days a week.
Nouriel Roubini posted a defence of US CEA Head Miran which claims there are no White House plans for capital controls (that he knows of).
The State Department is going to get a big shake-up to slim it down.
At Health and Human Services, RFK, Jr. is to ban artificial food dyes, also stating: “Sugar is poison, and Americans need to know that it is poisoning us.”
US Treasury Secretary Bessent side-briefed an investment bank that the trade stand-off with China is “unsustainable” --it’s a de facto embargo now after all-- and a deal would be struck soon, even if it will take 2-3 years for things to normalise. This saw stocks rip higher before the public heard about it --“Main Street not Wall Street”, right?-- though Bessent apparently also said much depended on China, not the US, moving.
The White House added a trade deal with China is going well, and Trump said the final tariff won’t be as high as 145% “because China will have to make a deal.” To a 60% tariff, once unthinkable but now looking reasonable by comparison? To voluntary export restraint?
The US said it’s received 18 trade proposals and has meetings with 34 others this week - all of whom will be told to deal less with China.
As US Trade Representative ‘Keeping up with the Jones Act’ port fees now in place are so high they also decouple the US from Chinese-built vessels, with Chinese-cranes, containers, and chassis next in line. It’s full steam ahead for the trade war on that front.
Meanwhile, China asked South Korea not to export goods to US defense firms that contain its rare earths, and Vietnam and Korea clamped down on transshipment of Chinese goods to the US, showing sides are being taken. Expect more of that ahead.
With no sign of realist statecraft, Politico flags ‘Trump’s tariff war empowers Europe’s free traders’-- just not the ones prepared to match US offers of removing all regulatory barriers to trade-- as “Even the EU’s most protectionist countries are realizing that they need new friends to trade with as their oldest ally goes rogue.”
EU Commission President Von der Leyen adds the ‘World is ‘lining up’ to work with Europe amid Trump’s trade war’. So, Europe will be importing a lot more then? Because nobody wants to replace exporting to the US with importing from the EU. In which case, Europe ‘replacing the US’ globally means taking on all its key weaknesses, such as trade deficits, with few of its strengths, such as energy, tech, and defence muscle.
In geopolitics, Russia proposed to freeze the invasion of Ukraine along current lines as part of a peace deal. Europe remains concerned that could lead to further concessions from the US would weaken Ukraine going forwards, and Kyiv has already rejected ceding Crimea to Russia. Is there really a happy ending there?
US and Israeli military preparations for a strike on Iran continue, as President Trump says he and Israeli PM Netanyahu are “on the same side of every issue.” Yet US-Iran nuclear talks are advancing quickly, with the two sides already exchanging drafts according to once source – and as Israel sees its outgoing equivalent of the FBI leaves an affidavit that the PM wanted him to spy on protestors and swear loyalty to him over the legal system. Some would argue that the last time the Middle East saw a happy ending was in ‘The Tales of the Arabian Nights’.
And sounding like one itself, the now suddenly ex-head of the WEF and his wife -- whom all the Liberal World Order’s great and good liked to hobnob with -- are under investigation for financial and ethical misconduct involving ATMs, private in-room massages at hotels, and luxury travel. I’m shocked that an organization as democratic, transparent, and accountable as the WEF, and which charges nearly $50 for a hotdog, might allegedly have seen misuse of funds like that. Some will be equally sure the next WEF head will Build Back Better.
So, where do we sit now? With stocks higher, key bond yields lower, DXY trending higher if off yesterday’s peak, and gold sharply lower if trying to rebuild momentum in early Asian trading.
But if you think that just because Trump said he isn’t going to fire Powell in an era in which the independence of central banks is going to be called into question by the demands of realpolitik; or because he said something nice about China and tariffs for the nth time as the world starts to divide along geopolitical lines; or because nuclear-armed Russia and nearly-nuclear-armed Iran are about to live happily ever after with the neighbours they have sworn to destroy,… well, clearly you enjoy fairy tales.
Sadly, we still have to achieve a new global security, financial, economic, and trading architecture to replace the old US-centric one that didn’t work well enough not to collapse. That will take us 1,001 nights, at least!
