“Did somebody just blink?” asked the markets. “Not me” said President Trump. “We’re not so sure about that” said the markets.
Did he or didn’t he, that is the question. If President Trump’s declaration that he has absolutely no intention of firing Jay Powell, chairman of the Federal Reserve System and one of his favourite punchbags is not a case of him blinking, then what is? His verbal attacks on “Mr Too Late” as he has liked to call Chairman Powell – note my pre-emptive but cautious use of the past tense – have been on a viciousness unbecoming a President whilst to all and sundry it was clear that he was consulting his lawyers to see if a wrinkle could be found which would enable him to have the man removed from office. As far as markets were concerned this was just about the end of the line in terms of offering Trump and his merry men the benefit of the doubt.
The markets’ reaction to the threat of Powell, seen by Wall Street as the absolutely last adult in the room, being taken out was nearly as ruthless as Trump’s threat itself. And now Trump has rowed back.
Is this maybe because he has been quietly advised that firing the chairman of the Fed really is beyond his power or has the reaction of markets told him that he has reached the edge of the envelope? Or possibly both at the same time? Either way, his volte face is significant and the way in which markets are reacting looks to indicate that, as far as they are concerned, the high water mark of Trumpian tomfoolery might have been reached.
As of this morning everything that was at the same time yesterday crying out “Unhinged!” has reversed. Gold, having in the form of the Comex future, cut through the US$ 3,500/try oz mark like a knife through soft butter is this morning back at closer to US$ 3,350. The 10 year US Treasury note having traded to a high yield of 4.43% is back down at 4.35% but the really big mover is the dollar itself which has rebounded from CHF 0.8075 to CHF 0.8225. Asian and Pacific stock markets are a sea of green and prior to the European and US markets having opened, it looks as though the rebound is going to be global. Has Trump met his unlikely match in Jay Powell, has the immoveable object in fact defeated the irresistible force?
It is without a doubt far too early to call the inflection point in the breakdown of US and global markets but the President’s rock-solid conviction that he has been right, and the rest of the world wrong certainly looks to have suffered a wobble.
The argument that one must not take what he says too seriously and understand what he means has since his theatrical performance in the Rose Garden taken a pounding. Real life isn’t binary and the ease with which his bases for the imposition of tariffs had in minutes been disassembled without a doubt left him looking a little bit stupid.
As Forrest Gump kept on repeating, stupid is as stupid does although the Donald has an uncanny ability to turn a vice into a virtue so that his cancelling all supplementary tariffs beyond those imposed on China have been spun as him being graciously magnanimous and not as an admission that you can’t make global trade policy on the back of a bus ticket.
Before we go any further, let’s not forget that tariffs, the most beautiful word in the English language, were supposed to bring in trillions, help to repay the national debt at the same time as fund not quite new tax cuts but the roll-over of ones implemented during his first term and due to run off. The usual cheerleaders have been making the usual noises whilst Scott Bessent, Treasury Secretary and the man who should above anyone else know what’s what has been notably reticent. Has a white flag just been run up over the White House?
Keep a keen eye on JD Vance. I know that he is a figure of hate here in Europe, not least of all since his disarming speech on Valentine’s Day – no massacre jokes please – at the Munich Security Conference in which he accused Europeans of having collectively lost the plot and of sacrificing their cultural heritage on the altar of political correctness. Yes, this was pure Trump, even more Trump than Trump himself but let us not miss the key point. Vance is staggeringly ambitious. He has gone from explicitly “Never Trump!” to being the flag waver in chief. He will, so it appears, do whatever he can to assure his succession to the President who despite all the worries to the contrary cannot and will not try to run for a third term. Please don’t make the mistake of thinking of Vance as some third rate hick on the make. He is highly intelligent, highly motivated, a Harvard man, a former private equity executive and ruthlessly ambitious. If beyond the rumblings and mumblings of the President you want to get the 3D and Technicolor version listen to Vance. I’m not sure whether Vance believes a word of what he says but he certainly knows how to make all the necessary noises. He gives us distilled Trump and if there is to be any shift in the course which the President is plotting it’ll be from Vance that we get it.
This is not like the relationship between George W Bush and his Veep Dick Cheyney which was as close to a joint presidency as one could get. Vance is Trump’s self-appointed hatchet man. He does, however, want the presidency and he will remain unflinchingly loyal until the moment comes when he senses that he’s on the wrong train. Vance is I suspect the canary in the Trump coalmine. I digress.
In a flurry of throwaway lines, Donald Trump has in the past 24 hours seemingly changed direction. He’s even talking of the possibility of the swingeing tariffs on China being reviewed. Again, is he beginning to believe that he might have overegged the pudding or is it a little more that he is finding that alienating the Chinese who are not at war with the rest of the world is strengthening and not weakening their hand? As I observed yesterday, Napoleon’s Continental System probably did more than anything else to foster the rise of the British Empire.