What do you make of the fresh tariff announcements by President Trump on Russia? He has given that 50-day window to Putin where he wants him to listen to him and he is willing to supply arms to Ukraine as well. How do you see the situation intensifying and what can it mean for the markets?
Steve Englander: I do not think it will mean much till day 49 and markets have started timing the risk on Trump statements and obviously August 1st is the date they have focused on for most trading partners and 50 days for Russia. In some ways, it is reassuring to Western Europe that the US is moving back into a more traditional foreign policy line. But right now, it is wait and see. When it comes to tariffs, the market sees a way out. It is not clear what the way out is for the Russia-Ukraine war. So, they will be watching developments to see if any progress is made in terms of coming to a ceasefire, but for now, 50 days is a long way off.
Fifty days seems like a long way away, like you just said, but do you believe that the outcome that Trump wants is even a possibility right now because it is not unheard of that Putin is going to be giving into these demands. It is not largely expected if you could put it that way. What do you believe could happen in the next 50 days in terms of the tariff front and also Putin’s stance on this entire war?
Steve Englander: I am not going to pretend to be an expert on Russian politics. I mean, he has got his priorities. He has to decide how credible the US threat is and whether he wants to respond in a positive way and whether he can walk away from the war in a way that works for him politically. So, we will have to wait and see. The other tariffs are probably going to be more market moving if we do not make progress. But so far, the market seems to think that there is a lot of room for negotiation here and US equities are either at record highs or very close to record highs and keep going up. It is a sign that the market expects some resolution on the standard tariffs as opposed to war related tariffs.
What are you making of various asset classes? While equity markets are holding out quite okay of late – in range but near about their record peaks pretty much at least in the US and many other emerging markets as well, I am intrigued about the way Bitcoin has been behaving and there is a whole crypto week wherein it seems that the US house of representatives are going to be looking at some legislations when it comes to cryptos.
Steve Englander: Yes, crypto is having a good week and dealing with stable coins is one of the few topics on which there seems to be a bipartisan consensus here. The administration seems to be so friendly towards that, which is part of the reason we are seeing prices go up. It is also a sign that the market is relatively optimistic on risk.
In this background, we keep seeing bond yields drift up and that is related to the fiscal bill and a lot of the ways by which it closes budget holes are questionable. So, we will probably see the deficit and debt increase beyond what they are projecting with the bill. So, in some ways, the market is saying what do we have the most conviction on? If it is equities, it is because of technology. Things are exogenous to policy not because of policy but because they see technology as opening up a lot of doors.
They look at the fixed income market because there is a story there from the fiscal bill which is that maybe upward pressure on yields. FX is losing out on this. You ask if US yields go up, do we buy the dollar? But they are going up for a bad reason. Is that a reason to sell the dollar, what about the tariffs? In December, tariffs were positive for the dollar. In April, they were negative. So, the market has been looking for opportunities outside of FX at the moment.
