By Benjamin Picton, Senior Macro Strategist at Rabobank
"May you live in interesting times” is a phrase sometimes erroneously attributed as an ancient Chinese curse. The general idea being that “interesting” times are more likely to be tumultuous and hard, rather than easy and comfortable. Given that we now live in a time where established orthodoxies like “free trade is always and everywhere a good thing”, ‘the international rules-based order’ and “there will never be an American Pope” are being overturned, its fair to say that the current climate meets the standard for “interesting”.
The big market-related news this morning is the trade talks between China and the United States in Geneva over the weekend. Treasury Secretary Scott Bessent said that the talks resulted in “substantial progress”, while Chinese Vice Premier He Lifeng also extolled “important progress” without offering specifics. President Trump went so far as to call the talks a “total reset” on the US-China relationship, but if that’s the case the risk-on tone in markets this morning seems underdone. Perhaps this is one of those occasions where traders’ reticence to price in “he means what he says” actually works because deep divergence of interests means that there is unlikely to be any substantive meat on these bones? Risk assets are minorly bid this morning and Bessent says an announcement of particulars will be made later today.
Meanwhile, President Xi Jinping travelled to Moscow last week to attend Russia’s Victory Day parade, marking 80-years since the defeat of Nazi Germany in WWII. At the event Xi described the relationship between Russia and China as “unbreakable” and said that they were ”friends of steel”, which might be a little awkward for the European trade boffins who see closer ties with China as a card that they can play in negotiations with the United States. Is the friend of my enemy my enemy? Or can we still be friends while I pretend that he doesn’t pal around with unsavoury characters that are fighting wars of aggression against my other, smaller friends? It’s hard to see how Europe could lay claim to usurping the USA as the new torchbearer of freedom and democracy (as some have claimed it has done) while pursuing such naked self-interest on the trade front.
Of course, others are happy to drop the pretext that they are pursuing anything other than naked self-interest. President Zelenskyy, backed by European counterparts, had offered a 30-day ceasefire in the war against Russia, but was rebuffed by Moscow who countered by offering direct talks to be hosted in Istanbul later this week. Zelenskyy, increasingly pressured by the US to cut a deal to end hostilities, says that he is ready to talk but it is unclear whether he will be meeting with Vladimir Putin in person. What IS clear is the likely terms offered by Russia for peace: no NATO membership for Ukraine, recognition of Russian dominion over Crimea, no international peacekeepers on Ukrainian territory, recognition of Russian control over territory in Eastern Ukraine and strict caps on Western military aid to Ukraine. All of that sounds a bit ‘Treaty of Versailles’, but the realpolitik here is clear: Russia is nakedly pursuing its vital strategic interests and the ‘international rules-based order’ really doesn’t feature.
Elsewhere in geopolitics, India tweaked the US’ nose for suggesting that it had brokered the tenuous ceasefire that is currently holding vis-à-vis Pakistan, and PM Modi reportedly told J.D. Vance that any further attacks from Pakistan will be met with “devastating and strong” retaliation from New Delhi. A number of news outlets have noted in recent days that the tit-for-tat exchanges between the two South Asian neighbours has provided an interesting sandbox for testing Chinese military hardware (as deployed by Pakistan) against Western weaponry increasingly adopted by India. No doubt there will be many interested onlookers should hostilities flare up again, as seems likely.
President Trump will travel to Riyadh today to meet with Saudi Arabian officials. Saudi reportedly wants to do a deal to access civilian nuclear technology, and has told the US that if they are unwilling to supply it they may look elsewhere (read, China). Meanwhile, the relationship between the United States and Israel seems to be deteriorating as the USA tries to do a deal with Iran over its own nuclear ambitions (a red line for Israel), calls time-out on strikes against the Houthis, and flirts with the prospect of recognizing a Palestinian state. Israeli PM Netanyahu is digging his heels in over extending the war in Gaza (much to the frustration of the USA) and comments attributed to Netanyahu suggesting that Israel may need to “detox” itself from US security assistance are currently spreading across social media. The trend in developments here seems to suggested that odds of diplomatic normalization between Saudi Arabia an Israel are lengthening, which is a win for Iran and another L for Western-liberal multilateralism.
So, the world remains in a geopolitical flux as the architecture hammered out at Bretton Woods appears to be breathing its last and Great States vie to shape the emerging global order. Markets are still ticking along though, with gold down, oil up, the DXY index back above 100, yields on US 10’s rising again and stocks opening up bid.
We may live in interesting times, but in the markets it’s all very ho-hum.
