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Your guide to what the 2024 American elections mean for Washington and the world
This week, we have witnessed “the biggest strategy of the Economic Master by an American President in History”, according to Stephen Miller, adviser to Donald Trump.
The return of the US president from most of his aggressive trade tariffs was “excellently executed,” thought billionaire Bill Ackman’s supporter. “The textbook, the art of the agreement.”
Someone has to tell the investors about this startling genius act, as they do not seem to have taken the memorandum. US shares screaming higher in the immediate consequences of Trump’s Big Blink, shaking one of the biggest dances in the record. But the next day, the photo was not beautiful for Team Maga: a higher cleansing in the markets from Asia to Europe, but a large decline in the US Dollari, who failed to attract his usual buyers seeking security during the Trump mini crisis, fell further after the president took a step back in tariffs, and further when American actions resumed.
Short -term short -term interpretation movements are a risk here. But this suggests all some difficult truths about the American administration: stock investors would better come to work elsewhere, and the country’s essential financial resources – treasures and dollar – are losing the splendor of global hegemonic predominance they have enjoyed for decades. Faith has gone, or at least to weaken significantly, and it is difficult to see what he can restore while Trump is in the White House, or beyond.
Markets relate to spreadsheets and numbers that fall on the screen on a screen, but they are also driven by blurry things such as vibration and reputation. For the US, they rely on the features that investors have never seriously questioned: the rule of law, the creation of sensitive policies and strong independent institutions. Trump has thrown all this into doubt.
Places and other smaller markets can share lessons on how this tends to go out. Markets in the UK are still trampling on eggs more than two years after Liz Truss set fire to the gilded market. Whenever the new job Chancellor Rachel Reeves opens her mouth, the holders of the United Kingdom Government connections are afraid of a reprint. The market is stuck. Japan is still working hard to persuade global assets managers to trust her 30-year-old stock market years after its explosion. Investors are still afraid of false dawn.
It takes time to disassemble positive or negative stereotypes, without a great shock. In SH.BA, that great shock is Trump. For investors around the world, American actions and bonds have been “home” for years. American assets occupy a much larger part of the average investor portfolio than the relative size of its economy, in the order of 60 percent of global stock indices or 70 percent of developed markets. Its government bonds form the bed of the financial system.
For decades, parking money in the US has been the routine, no -fired, neutral option. Everything else requires more brain power, more analysis, more excuse. This is breaking down. US treasures are mostly behaving like flight, gentle adventurous in the UK. Some are even comparing them to developing market bonds: “EM-DIFICATION” of USA is the big theme in market circuits this week.
The interaction of politics, trade and markets is also not useful for the US Trade with China suppresses China’s need to keep dollars. Does Trump really want to see what happens if this demand evaporates? A fixation has developed about whether China can sell its dollar properties at this point. This is not the right question. The pointing is that there may be no need to accumulate more, at least not at the typical rhythm. The effect is still potentially bad for borrowing costs.
The optimistic case is that we have passed the stupid peak. The markets imposed a discipline on Trump’s strangest instincts for tariffs this week, and perhaps, now, some of the adults in the room may guide future economic policy on a less confrontational basis.
But as Polish leader Lech Wałęsa once noticed, you can’t turn a fish soup back into an aquarium. It is difficult to see a path to normal.
China aside, Trump is climbing down. But what is it to stop him from changing his mind again? What is it to stop his successor to try a reprint? Long -term investors are unable to do so every four to eight years.
So, a risk premium will sit in American assets that were not there before. Premium Trump, if you want.
When recovery begins, and will have done – or at least always throughout history – don’t expect the US to dominate the way it always is. Its shares hold political risk for the first time. Its bonds no longer act as if they are truly without danger. The dollar is not acting as a magnet during stress periods, nor as a currency that envisions an increase in American economic growth.
In contrast to this darkness, Europe has just as strong an investment case now as it did two weeks ago. It is serious about increasing the approval of the euro as a reserve currency, and is deepening its internal financial integration. Is it adjusted and slower? Safe but are you blowing up historical geopolitical alliances and playing chicken with global trade? No.
Everyone else happens, the US markets will keep a scar that lasts.
Katie.martin@ft.com
