Atlantic Pivot

It’s amazing what a couple months of Donald Trump can do to markets – and, spoiler alert, it wasn’t what he or the market thought would happen….

As the Federal Reserve are now saying they only see one rate cut between now and the end of the year, with inflation remaining sticky, European policy makers are now talking of European rates falling to 2% by the end of the summer – that’s a 65bps cut from where we are today.

Moody’s has warned that public finances in the US are on a deteriorating path, thanks to tariffs unfunded tax cuts and “significant tail risks to the economy”, with the market as per usual being ahead of this statement and pushing the Nasdaq and S&P500 below the levels that they started the year at. Meanwhile, in Europe, the FTSE is up about 5%, the French CAC is almost 10% higher and the German DAX is up more than 15%! In fact, the rotation out of US stocks and into European equities is already at record highs and seems to be accelerating. Typically, stock market cycles are multi-year, but this one has started incredibly strongly and we wonder at what pace this can be sustained or, as is often the case, the smart money has started moving and this will pick up once the dumb money catches on.

One area there is alignment is in expenditure… Far from getting the budget balanced, Trump wants a debt limit increase included in his reconciliation bill, which is dubbed “one big, beautiful bill” that will encompass an overhaul of the tax code, along with border, energy, and defence policies. Despite Elon Musk taking a chainsaw to various state departments (metaphorically and actually), the untouchables – healthcare, defence and social security – being out of scope means that almost any other cuts in expenditure are basically a rounding error. Still, he’s not the only one with budget issues…

Today Rachel Reeves is set to lay out her spring statement and try and make her fiscal plans sound remotely responsible and part of the plan. The reality is that there’s going to need to be cuts to government expenditure, an increase in borrowing and an increase in taxes – expenditure we’ve heard about and will come from a material reduction in department budgets, taxation we also know is coming in the form of National Insurance hikes and threshold reductions, along with tax bracket freezes, whilst the borrowing piece could well be gotten away without mention, as a few extra billion is already being forecast in the Treasury’s gilt issuance forecasts and, if Ms Reeves is lucky, the capital reallocation from one side of the Atlantic to the other, might mean that UK debt has a wider audience, which in turn might keep the costs fairly well contained.

So, as the market decides if Europe is a better immediate prospect than the US, the problem comes that this puts Europe more at risk of Trump’s ire – which may not only play out in tariffs, but in the treatment of Ukraine and the US support required to enforce any kind of ceasefire and peace keeping efforts.

The latest on that is that there’s been a ceasefire agreed in the Black Sea, which is something Russia has been very keen on, as their fleet has been pretty comprehensively decimated over the last couple of years. There’s refusal by the Kremlin to go any further at this point without the lifting of US sanctions on the country – it will be interesting if, or for how long, Trump holds out on this, as it would be a firm red line for Europe, but Trump and Putin seem to have their own thing going on.

In a rather unexpected twist, the Trump administration found itself in hot water (again) after senior officials inadvertently shared their plans for airstrikes on the Houthis in Yemen with a journalist. This blunder not only exposed a glaring security lapse but also sparked a political firestorm. Critics were quick to pounce, questioning the administration’s ability to safeguard classified information and manage sensitive operations. The international community watched with a mix of amusement and concern, wondering if this was a new strategy or just sheer incompetence.

Amidst this chaos, the creation of the Signal app by Moxie Marlinspike and Stuart Anderson in 2010 seemed almost prophetic. Designed to maximise privacy and shield users from governmental tracking, Signal’s robust encryption protocols offered a stark contrast to the apparent vulnerabilities within the Trump administration. As people sought refuge in secure communication platforms, Signal’s popularity soared, highlighting the growing demand for privacy in an increasingly surveilled world.

Meanwhile, the humanitarian implications of these airstrikes cannot be overstated. Yemen, already teetering on the brink of disaster, faces the prospect of further devastation. The ethical considerations of such military actions are also brought to the forefront, highlighting the dire need for a more humane approach to conflict resolution.

The accidental disclosure of airstrike plans not only undermines trust in the Trump administration but also has broader implications for global trust in U.S. leadership. This incident exacerbates the already declining trust in political institutions worldwide. Countries that rely on the U.S. for strategic partnerships and security cooperation, if they didn’t already, may begin to question the reliability and competence of American governance.