Zerohedge

Authored by James Rickards via DailyReckoning.com,

It’s game on for the trade wars.

After months of threatening tariffs on U.S. trading partners during his 2024 presidential campaign, Trump has now taken definitive action on that front. On Saturday, February 1, Trump announced that the U.S. was imposing 25% tariffs on all goods imported to the U.S. from Mexico and Canada (with the exception of Canadian energy, which was tariffed at 10%) and additional 10% tariffs on all goods imported from China.

These new Chinese tariffs were on top of tariffs Trump imposed on China in 2018, many of which were left in place during the Biden administration. All of these new tariffs were to take effect on Monday, February 3rd.

Trade Wars Are Heating Up

Canada announced they will retaliate against Trump’s tariffs with 25% on a list of U.S. imports and warned Americans that Trump’s actions would have real consequences for them. Mexico has said it will also impose retaliatory tariffs, without mentioning any rate or products.

Meanwhile, China struck back at the United States by announcing tariffs on select American goods, escalating the trade war. Some U.S. goods imported into China will be subject to tariffs of up to 15%, as they rolled out a series of retaliatory measures to counteract Trump’s planned tariffs.

The new trade wars have now gone global. In addition to the Mexican, Canadian and Chinese tariffs, Trump announced that EU tariffs are coming soon. Trump tentatively indicated that the EU tariffs would be 10% across the board.

Even though there have been concession moves by both Canada and Mexico recently, Trump has only delayed his tariff plans in the negotiations.

But It’s clear that a full-scale global trade war is now underway. And it could be devastating for investors who don’t know how to maneuver through the landmines.

Neighborhood Wars

Canada ($419 billion) and Mexico ($475 billion) account for almost 30% of all goods imported by the United States. Canada, Mexico and China are the three largest trading partners of the U.S.

Obviously, Canada and Mexico are our closest neighbors, and each shares a long border with the U.S. The new trade wars will have many facets, but solving problems with regard to Canada and Mexico will be a big part of the global puzzle and establish benchmarks by which other countries will be judged by the U.S.

The extent of Canadian and Mexican trade with the United States is difficult to overstate. Twenty-three of the fifty states rank Canada as their number one trading partner measured by imports. That includes the entire northern tier of U.S. states from Washington to Maine (with the exceptions of Idaho and Michigan) and most of the Midwest.

Ten of the fifty states rank Mexico as their number one trading partner measured by imports. That includes the entire southern tier of U.S. states (with the exceptions of California and Florida), plus the states of Missouri, Kentucky and Michigan. From automobiles to avocados, Canadian and Mexican imports are everywhere.

Trump cited three reasons for imposing tariffs on Mexico and Canada: illegal immigration, fentanyl and unfair trade practices. The issues of illegal immigration and fentanyl are closely linked because they both involve securing the border.

A bigger issue lurking behind the U.S.-Mexico negotiations is the extent to which Chinese companies have taken over Mexican companies or built their own factories in Mexico to do an end-run around direct tariffs on China.

The Chinese are putting automobile assembly plants in Mexico and exporting the cars to the U.S. free of tariffs under the U.S.-Mexico-Canada Trade Agreement (USMCA, the successor treaty to NAFTA). It may be the case that U.S. auto companies (Ford, GM) will be able to continue bringing in cars to the U.S. without duties while the Chinese-owned companies in Mexico get whacked.

That leaves open the issue of European car makers with plants in Mexico. I spoke to a well-informed source at Audi recently. They’re frantic. They just built a multi-billion-dollar plant in Mexico to do final assembly on the Q5 SUV (their most popular model). They expect that new Mexican tariffs will price it out of the market (compared to Toyotas and Nissans that are built in the USA).

Volkswagen, which owns Audi, may be in financial distress as a result of Audi’s mistake. It was clearly a major blunder on Volkswagen’s part not to locate their Audi factory in Tennessee or South Carolina as other foreign car manufacturers have.

The trade situation with Canada is more problematic.

Even with the one-month delay in imposing tariffs on Canada, the substantive policy issues remain. Trudeau is not in a strong position to negotiate anything because he has already agreed to step down as party leader and Prime Minister. The fight to replace him as party leader is being led by former Deputy Prime Minister Chrystia Freeland, a trade-hawk and neo-fascist sympathizer.

National elections in Canada are scheduled for October 20, 2025, but could be held sooner. The national election could come down to Chrystia Freeland as the Liberal Party Leader and Pierre Poilievre as Conservative Party Leader. Poilievre is far more reasonable on trade issues than Freeland.

The Freeland Plan to fight Trump includes dollar-for-dollar tariff retaliation, an international anti-Trump trade coalition including Mexico, Denmark, Panama and the EU, a ban on purchases of U.S. goods by all Canadian federal government agencies, a ban on American companies bidding on Canadian government contracts, a ban on American firms participating in projects funded by Canada, and support for Canada’s cultural sector against “Donald Trump’s billionaire buddies.”

The even more radical Ottawa Premier Doug Ford has proposed halting Canadian energy exports to the U.S. and “ripping up” Ottawa’s contract with Elon Musk’s Starlink company.

Canadian exports to the U.S. are dominated by energy products (about $165 billion) followed by automobiles and parts (about $83 billion), and consumer goods (about $70 billion). Electronics, food, fish and aircraft make up a relatively small part of the total.

Investors should accustom themselves to continual trade wars and the market volatility that goes with them. But this also means there are profit opportunities as Trump pursues the art of the trade deal.

Why Higher Tariffs?

Trump wants America to enter a “new golden age”. He wants to do that by a revival of the American System. Part of that system was imposing high tariffs on imports to support manufacturing and high-paying jobs in the United States. You can see from the chart below how historically America ran trade surpluses when high tariffs were in place.

Foreign companies will be free to sell goods to Americans, but only if they are manufactured in the U.S. This will lead to a wave of inbound investment in the U.S., a reduction in U.S. trade deficits, a stronger dollar (as the world demands dollars to invest here), and higher wages for U.S. workers.

Higher wages will raise real incomes, stimulate consumption, decrease income inequality and expand the tax base to help reduce deficits without raising tax rates. Trump’s plan is designed to rebuild American factories, the American economy, and support American workers.

The increase in investment in the U.S. also accelerates the U.S. lead in high technology including semiconductors, artificial intelligence, nanotechnology and quantum computing. China has kept pace in these fields by stealing intellectual property and providing massive government support. Now, the U.S. can pull away from China by importing some of that technology and relying on private investment along with government support.

Contemporary critics of tariffs (basically all mainstream economists) claim that these tariffs will invite retaliation by trading partners and may cause a replay of the collapse of world trade that did occur in the 1930s.

This flawed analysis ignores the initial conditions qualifications described above. China is in the opposite position of the U.S. It produces too much and does not consume enough. China’s best approach would be to lower its tariffs, encourage consumption by its citizens and attempt to strengthen its currency so that its consumers can afford more imported goods.

In fact, we expect China to do the opposite and hunker down in its neo-mercantilist approach by cheapening its currency and attempting to flood the world with more exports.

If China takes the latter approach, it will fail. That won’t be the fault of the United States, it will be China’s own failure. U.S. policy should not be designed to Make China Great Again. That’s China’s job.

U.S. policy is to Make American Great Again. That means high tariffs, lower taxes, more productive investment (including public investment) and high-paying jobs that will support consumption side-by-side with increased investment.

The global tariff and financial wars will feature countries stealing growth from their trading partners. There will be pain but also opportunity. Some sectors will do better than others as this chess match plays out.

Investors want a slice of X as Elon Musk’s social media platform becomes the epicenter of news distribution, while corporate leftist media outlets and their government-funded censorship cartel face a fiery demise (see: Politico). This follows a multi-year advertiser boycott led by mega-corporations and relentless lawfare by an army of leftist nonprofits in their attempt to destroy the platform. However, those efforts have failed, and Musk has gone on the offensive, positioning X for a year of success.

In the latest report from The Wall Street Journal, top banks finished up a sale of debt backed by X. Sources familiar with the debt deal stated that the banks initially planned to sell around $3 billion in debt at 95 cents on the dollar. However, due to surging demand from large high-yield fund managers, the deal was upsized to $5.5 billion. 

Buyers of the debt included Pimco and Citadel, who agreed to pay 97 cents on the dollar. The floating-rate debt carries an interest rate of 11%, with borrowing costs several percentage points higher than some of the riskiest loans on Wall Street. 

The upsized sale of X debt marks the end of the multi-year doom loop for Musk’s social media company. Since purchasing the platform in 2022, Musk has faced relentless advertiser boycotts and endless lawfare from shadowy leftist billionaire-funded nonprofit groups. However, X’s ability to circumvent the Biden-Harris regime’s censorship cartel and play a key role in the Trump-Vance presidential victory has placed Musk in Washington as a special government employee leading DOGE efforts. This, in return, has strengthened Wall Street’s confidence in X.  

Additionally, Trump’s executive order on “restoring free speech and ending federal censorship” is expected to provide additional tailwinds for X and other alternative media platforms. This is yet another key driver of soaring optimism around X. 

Last Friday, X CEO Linda Yaccarino and Morgan Stanley bankers presented prospective investors with metrics showing the social media platform’s financial health was set to rebound in 2025. 

“Revenue should improve rapidly this year, as the advertising boycott winds down,” Musk told one X user. 

Revenue should improve rapidly this year, as the advertising boycott winds down

— Elon Musk (@elonmusk) February 6, 2025

WSJ noted:

Financial documents reviewed by investors showed that the artificial-intelligence company transferred hundreds of millions of dollars to the social-media company, the people said. That money has helped X pay its bills and stay current on its obligations, the people said. Growing advertising revenue at X should mean fewer transfers in the coming months and years, the people said.

The financial documents said X now holds a 10% stake in xAI, valued at around $5 billion, people familiar with the matter said. The AI company last year was valued at $50 billion. Musk had previously posted that X investors would own 25% of xAI.

X also reported to the investors 2024 adjusted earnings before interest, taxes, depreciation and amortization of about $1.25 billion and annual revenue of $2.7 billion. Investors said that was a better picture than they had expected and that X’s finances hit an inflection point a few months before the November election.

In 2021, Twitter reported adjusted Ebitda of about $682 million and about $5 billion in revenue. That was the last full year before Musk took the company private.-WSJ

X’s debt sale is a big relief for banks…

You’ll never guess what happened next https://t.co/Z2hX260Up5 pic.twitter.com/5SnGA9Vz6K

— zerohedge (@zerohedge) February 6, 2025

Yaccarino and X CFO Mahmoud Reza Banki told investors that advertisers are returning and that the company’s valuable stake in xAI should give them enough confidence to invest in the social media platform.

“Go. Fuck. Yourself.” – Elon Musk (2023) 💥 pic.twitter.com/FH4PhMV0o5

— Kevin Svenson (@KevinSvenson_) November 29, 2023

. . .  

Authored by Sam Bourgi via CoinTelegraph.com,

Trump Media and Technology Group (TMTG) intends to launch exchange-traded funds (ETFs) and separately managed accounts (SMAs) tied to its Truth Social platform, which includes investment strategies related to Bitcoin.

According to a Feb. 6 announcement, TMTG has filed trademark registrations for various ETFs and SMAs tied to the Truth Social platform and Truth+ video streaming service. 

The trademarks include Truth.Fi Made in America ETF, Truth.Fi Made in America SMA, Truth.Fi US Energy Indepedence ETF, Truth.Fi US Energy Independence SMA, Truth.Fi Bitcoin Plus ETF and Truth.Fi Bitcoin Plus SMA.

TMTG Chairman and CEO Devin Nunes said the funds give investors the ability to invest in “American energy, manufacturing and other firms that provide a competitive alternative to the woke funds and debanking problems” allegedly found in other parts of the market. 

This strategy includes “exploring a range of ways to differentiate our products, including strategies related to Bitcoin,” said Nunes.

The proposed Truth.Fi funds include an initial investment of up to $250 million to be custodied by Charles Schwab, the announcement said. The New Jersey-based Yorkville Advisors will serve as the Registered Investment Advisor for the new products.

TMTG was founded in 2021 and is majority-owned by US President Donald Trump. The company went public in March 2024 and its stock currently trades on the Nasdaq.

Trump’s crypto MAGA promise

President Trump has promised that cryptocurrencies will flourish under his administration. This was further reiterated on Feb. 4 when Republican congressional leaders said they would form a working group to focus on crypto and stablecoin legislation. 

“We don’t want to be behind in financial technology and digital assets in the United States,” said Arkansas Representative French Hill.

Senator Tim Scott, Rep. French Hill and Senator John Boozman reiterate Republicans’ push for pro-crypto legislation. Source: US Senate Banking Committee

On the same day that Republicans announced their renewed regulatory push for pro-crypto legislation, Securities and Exchange Commission Commissioner Hester Peirce vowed to fix the “mess” that ex-SEC Chair Gary Gensler left behind regarding crypto. 

According to Peirce, the White House’s newly formed Crypto Task Force is recommending that the SEC “provide temporary prospective and retroactive relief for coin or token offerings” that were unfairly targeted by the previous regime. 

President Donald Trump has been notoriously hawkish on Iran, as have some of his top national security officials, which is why it was surprising and refreshing for his rhetoric to take a different track in Wednesday statements. Responding to reports that the US and Israel are preparing scenarios to attack Iran and its nuclear sites, Trump stated Wednesday that these reports are “greatly exaggerated” and said that making a deal would be preferable instead.

“I want Iran to be a great and successful Country, but one that cannot have a Nuclear Weapon,” the president wrote on Truth Social. “I would much prefer a Verified Nuclear Peace Agreement, which will let Iran peacefully grow and prosper. We should start working on it immediately, and have a big Middle East Celebration when it is signed and completed. God Bless the Middle East!” Trump added.

During his first administration, Trump unilaterally pulled the United States out of the JCPOA nuclear deal with Iran in 2018, which had been implemented during the Obama administration, and involved the other P5+1 countries of China, France, Germany, Russia, the United Kingdom, as well as the European Union.

He also dropped a surprise bombshell upon signing the new executive order to reimpose “maximum pressure” on the Islamic Republic, though it’s been woefully underreported in the media: 

“There are many people at the top ranks of Iran that do not want to have a nuclear weapon,” Trump said in the Oval Office.

Still, Trump claimed when he signed it that he was “unhappy” to do it – perhaps revealing it as leverage and part of his big stick approach which can induce a better deal down the road.

Iran and Mideast regional analyst Trita Parsi commented on how unexpected and significant these words are for a sitting American president:

I cannot recall any U.S. president ever deviating from the quasi-official American line that Tehran is dead set on getting nukes. U.S. officials rarely allow any nuance, or any shades of gray: Iranians always want a nuclear weapon and the only way to stop them from getting one is by preventing them from having access to the necessary material, know-how, or technology. If they have access, they will invariably build a bomb. It’s an unchallengeable certainty.

The 2007 National Intelligence Estimate on Iran caused a major controversy for simply assessing that Iran did not have an active nuclear weapons program, even though it also concluded “with moderate-to-high confidence that Tehran at a minimum is keeping open the option to develop nuclear weapons.”

That is: Iran still wanted a bomb but appeared to have temporarily paused its pursuit of one.

In the meantime, as of Thursday, maximum pressure has formally gone into effect as the US Treasury implements sanctions on the international Iranian oil transport network.

“This action is consistent with the President’s February 4 National Security Presidential Memorandum directing the Treasury Department and other U.S. government agencies to enact maximum economic pressure on Iran in order to deny all paths to a nuclear weapon and counter Iran’s malign influence,” the fresh Treasuring notification said. It announced that this will deprive the country of hundreds of millions of dollars for its military machine.

Trump stuns…

In a rare break from Washington dogma, Trump said what no U.S. president has dared: Some top Iranian leaders do not want a nuclear weapon. A major shift in the narrative that has fueled decades of hawkish policy. #Iran https://t.co/E3YepAIbWz

— Responsible Statecraft (@RStatecraft) February 6, 2025

Tehran is seeking to rally OPEC to its side after Trump threatened to take Iran’s crudel exports to zero:

Iran’s President Masoud Pezeshkian urged OPEC members to unite against possible U.S. sanctions on the major oil producer, after U.S. President Donald Trump said he would seek to drive Tehran’s oil exports to zero.

Iranian crude oil exports currently stand at around 1.5 million barrels per day, with the majority going to China. The loss of such a volume, equal to about 1.4% of total world supply, would be significant for markets.

US Treasury Secretary Bessent further announced the US is aggressively targeting Iranian efforts to use oil revenues to bolster its nuclear program, develop ballistic missiles, and support its terror proxies. Will this serve to bring Tehran and the Trump administration to the negotiating table? It looks calculated to do so, at least.

By Open The Books

The federal government has spent $44.2 million on subscriptions to political news site POLITICO since 2017. That includes dozens of Executive Branch agencies as well as offices in the House of Representatives.

There’s an app for people who’ve lost track of how many subscriptions. For government, though, that app is DOGE!

BY THE NUMBERS

The dollar figure includes $32.3 million in spending from inside the White House and $11.9 million from staffers in the House of Representatives.

Despite the online buzz, our auditors did not find any evidence of federal grants given to the news outlet. The only direct assistance the government has sent to Politico was a $1,000 Covid-19 relief grant from 2020.

Virtually all of the payments are, in fact, subscription fees!

Donald Trump’s White House spent just over $1 million on Politico in 2017, his first year as president. By 2020 subscription payments had increased to $2.8 million.

Then, payments increased dramatically once Joe Biden took office. The White House spent $4.4 million on Politico subscriptions in 2021. Payments reached a high of $7.8 million in 2023 and totaled $7.4 million in 2024.

It seems no one in the federal bureaucracy thought to share their password with their colleagues in other agencies. Thirty-eight different federal agencies and subagencies have sent payments to Politico since 2017.

The Department of Health and Human Services spent more than twice as much as any other federal agency with $6.9 million since 2017. The Department of Energy and Department of the Interior also spent more than $3 million in the same time frame. The Agency for International Development spent $44,000.

One might expect that federal bureaucrats are leading experts on government policy and public affairs, more so than journalists at Politico. That may not be the case.

INSIDER INFO

The White House is paying to get behind an even fancier paywall – access to Politico Pro. It’s a service meant to teach the public about what is happening inside the White House, but staffers there have spent $16 million on it since 2017. Thirty-one different agencies and subagencies have also subscribed.

The subscription rate for the Pro version has reached nearly $3,000 per person: a $140,203 payment from HHS in 2024 yielded only 49 subscriptions.

“Whether you’re a lobbyist, executive, consultant, researcher, strategist, or analyst, POLITICO Pro has what you need to power successful policy—anywhere,” the service’s website explains. “POLITICO Pro gives you the inside scoop on the public policy and players that matter most to you. Stay informed and ahead with to-the-point news and automatic tracking of government affairs and policy. Keep pace with the help of experts who act as an extension of your team. With this kind of elite access, you can be a leader in your policy arena.”

BOTTOM LINE

The public is broadly skeptical of national media outlets, distrustful of their reporting and presumes an ideological bent to their coverage. Like most major outlets, POLITICO has its fans and partisans.

But why should the public be on the hook to pay the subscription fee for operatives, staffers and bureacrats somewhere in Washington? We deal with enough paywalls in our own lives. Why are we propping up mainstream media outlets – private, for-profit businesses — with our own tax dollars?

It looks like DOGE is already on the case, but it comes after the better part of a decade of subscription spending.

Israel announced Thursday it has begun preparations for the departure of large numbers of Palestinians from the Gaza Strip following President Trump earlier this week publicly backing a controversial mass resettlement plan in neighboring Arab countries.

Prime Minister Benjamin Netanyahu praised Trump’s plan for Gaza as “remarkable” in an interview with Fox’s Sean Hannity published Thursday. “The actual idea of allowing Gazans who want to leave to leave. I mean, what’s wrong with that? They can leave, they can then come back, they can relocate and come back. But you have to rebuild Gaza,” Netanyahu said.

In the face of fierce condemnation and pushback from an assortment of countries like Saudi Arabia, China, Russia, Ireland, as well as the United Nations – Trump has still doubled down in a Thursday Truth Social post.

He explained that “the Gaza Strip would be turned over to the United States by Israel” after the end of hostilities. He reiterated that Palestinians could be relocated to “far safer and more beautiful communities, with new and modern homes, in the region” and would “actually have a chance to be happy, safe, and free.”

The president said the that the US would oversee development teams from across the world, which will “slowly and carefully” begin the construction of what would become “one of the greatest and most spectacular developments of its kind on Earth.”

That’s when he emphasized the following: “No soldiers by the US would be needed! Stability for the region would reign,” Trump wrote. Given that it’s an active war zone, and Hamas and Islamic Jihad are still openly displaying their weapons in battalion-sized displays and deployments, it seems doubtful any of this could happen without serious military intervention.

Trump said all of this after on Tuesday he declared he wants to the US to “take over” and “own” the Gaza Strip. Some aspects have been softened or walked back by the White House, however.

When pressed for clarification on Wednesday, White House Press Secretary Karoline Leavitt said, “They need to be temporarily relocated out of Gaza for the rebuilding.” Thus the plan has changed to a non-permanent resettlement, apparently, though it’s hard to see the logistics and politics of all of this actually playing out.

Leavitt continued, “It’s been made very clear to the president that the United States needs to be involved in this rebuilding effort to ensure stability in the region for all people.”

“That does not mean boots on the ground in Gaza. That does not mean American taxpayers will be funding this effort,” she added.

Secretary of State Marco Rubio has also sought to distance the administration from criticisms that this looks like a potential major foreign military intervention. He said the idea was of “temporary” relocation, and said the proposal “was not meant as hostile. It was meant as, I think, a very generous move — the offer to rebuild and to be in charge of the rebuilding.”

And Trump’s envoy for the Middle East, Steve Witkoff, echoed something similar. He said the US doesn’t want to put any US troops on the ground, and that no US dollars should be spent. He acknowledged that Trump had been “gestating” on the idea for a while.

By Michael Every of Rabobank

As the whirlwind of the US political, geopolitical, and geoeconomic (counter?) revolution plays out, it’s getting harder for even the most committed bean counter and econometricians to ignore.

Secretary of State Rubio will not be attending the upcoming G20 in South Africa to protest its policies. It remains to be seen if the G20 now joins the growing list of acronymic institutions that the US no longer has time for. If the latter, how long until we get to the holy of holies, the IMF? After all, is there any US strategic logic in supporting a multilateral institution whose neoliberal economic policies have been largely opposed to its own for the last eight years, and which will be even more counter to its stance for the next four?

The prospect of the US ‘owning’ Gaza has been floated, then sunk by all other parties, yet the US says this a starting point for new thinking, challenging others to come up with ideas that must, by design, shake things up. There’s not any oil involved here, but the key Suez Canal is very close, and the ‘if lines on maps can move —and peoples— so can lines on screens’ and “This is America too” elements are worth noting for those who think about volatility and term premia.  

President Trump is also again talking about a deal with Iran if it will drop its potentially accelerated efforts to build a nuclear bomb and work with the US. So far, the track record in flipping members of the Axis of Resistance to Team Trump is poor, and the threat of being “smashed to smithereens” is still out there, even if markets once again jumped on the ‘Trump is all about the deal, not dealing with things’ bandwagon.

Panama now allows the US Navy to use its Canal for free, may cancel the contracts of the Hong Kong firm operating the ports of Balboa and Cristobal at either end, and has agreed to “safeguard the canal” and “increase military collaboration” with the US. Guess which of the two will be sending more collaborating forces to the other? Defence Secretary Hegseth also stressed the US commitment to its mutual defence pact with the Philippines and offered increased defence aid to it – which will not please China.  

Major US tech firms with one foot in the US and the other in China seem on the shakiest of ground; that’s as the US postal service has reinstated parcel service from China and Hong Kong after briefly suspending it, a warning to those assuming goods must flow.

Of course, there are also tariffs, which bean counters and econometricians understand ‘best’. As one headline has it, ‘Chicago Fed’s Goolsbee Shifts From Dove To Hawk, Says Tariffs Impact On Inflation ‘Might Be Much Larger This Time’’

Meanwhile, Treasury Secretary Bessent says US tariffs will be back (not just vs Canada, Mexico, and China): the long game globally is “to squeeze trading partners now to create a self-sufficient industrial base later.” ‘Goolsbees’ will have to get buzzy with that in their modelling from now on, as will market observers bravely saying, “Trump is a trade paper tiger.” Indeed, India is already sending out signals that it is not a “tariff king”, happy to yield that metaphorical crown in the hope of some upcoming noblesse oblige on trade from the White House – an outcome which may depend on geopolitics as much as comparative advantage.

Bessent then ‘clarified’ that President Trump is not leaning on the Fed to lower rates – he would just like to see them lowered. See the difference? More importantly, the key focus is not Fed Funds but the US 10-year yield. So, Treasury ‘focus’, not an official target. See the difference?

Notably, Bessent thinks 10-year yields can decline as a result of his “3, 3, 3” economic policy targets – 3% real GDP growth, a 3% fiscal deficit, and a 3m barrels per day (bpd) increase in oil production. Yet they are not going to be possible without economic statecraft. To join the dots for you here:

• A 3% fiscal deficit might see some inroads made by DOGE’s ferreting efforts and the 1% voluntary shrinkage in the federal civil service already achieved, but with permanent tax cuts also lobbied for by Bessent –and a 15% corporate tax rate by the president– it would need a lot of new revenue from tariffs, which he also floated;
• A 3% rate of real GDP growth needs help from the Fed and the long end of the curve, which won’t do so voluntarily while they worry about tariff inflation;
• The 3m bpd US oil equivalent increase won’t happen via market forces, even if Energy Secretary Wright just announced “Net-zero policies raise energy costs for American families and businesses, threaten the reliability of our energy system, and undermine our energy and national security… the Department’s goal will be to unleash the great abundance of American energy required to power modern life and to achieve a durable state of American energy dominance.“ While our energy analyst Joe DeLaura expects oil prices to drift lower, to get cheap oil the US may have to use the Defence Production Act to force firms to “Drill, baby, drill”; or subsidies – paid for by tariffs(?); or get help from Venezuela –not in the US camp– or Iran –under “maximum pressure”– or Saudi Arabia, who at current oil prices already can’t afford their megaprojects like the first (and last?) linear city, Neom.

One perhaps starts to see how the Middle East, and the Americas and the US Monroe Doctrine, and White House economic, political, and even military statecraft are all in the complex mix here. Or perhaps once doesn’t and just counts beans. But it’s all going to play out anyway.

On which note, gold continues to flood out of the Bank of England’s vaults, as the French government survived a no-confidence vote, avoiding chaos. Europe plans more customs checks and fees to stem the flood of low-value parcels from China. This time it’s only acting a few days behind the US on economic statecraft rather than the customary few years; however, the headline that ‘We need a Draghi report for banking, say EU’s three biggest countries’ underlines that in key respects Europe is centuries behind the US, which doesn’t help with its statecraft, and hence its economic policy targets or competitiveness compasses, in any shape or form.

Elsewhere, the BOJ’s Tamura today, the bank’s most hawkish member, suggested there could be two or more 25bps rate hikes in the fiscal year starting in April, and that the BOJ’s key rate should be back at 1% by H2 2025. Obviously, this pushed JPY higher.

It will be interesting to see if/how Washington, D.C. and Tokyo, and the BOJ and the Fed, can coordinate not just their monetary policies but their statecraft together going forwards. Markets will need to know the same if even they don’t focus on that bigger picture.

The same is of course also true for D.C. and London and Mexico City, and the Fed and the BOE and the Bank of Mexico, both of which meet on rates today.

There are lots of uncomfortable thoughts in all this for some: but I am just Bessent-ing the facts of life.

As of the start of this week, the Kremlin said ‘no progress’ had been made in arranging peace talks on Ukraine between Moscow and Washington. Rumors and speculation abound, given that US diplomats under Trump are without doubt working behind-the-scenes to arrange something, with the possibility that talks could be hosted in a ‘neutral’ location like Saudi Arabia or the UAE.

A Thursday Daily Mail report has just added immense fuel to the fire of speculation, presenting the allegedly leaked Trump ceasefire plan which he intends to present for Russia’s consideration. The report says Trump will try to ‘force’ Ukraine’s President Zelensky to agree to a ceasefire by Easter, which is on April 20 this year.

The Trump administration is seeking to end the war within 100 days. “The unconfirmed plans, reported by Ukrainian outlet Strana, have been doing the rounds in ‘political and diplomatic circles’ in Ukraine, and will include a ceasefire by April 20 that would freeze Russia’s steady advance, a ban on Ukraine from joining NATO, and a demand for Kyiv to accept Russian sovereignty on annexed land.”

While still very much unconfirmed, the headline is having an immediate impact on oil prices. Zelensky’s office has vehemently denied the legitimacy of reports of the peace plans being reported and floated.

On top of these alleged key aspects of a ban on NATO admission, freezing the front lines, and agreeing to Russian sovereignty over the four annexed territories in the east, the leaked report says the following is also included in the proposal:

• On top of this, Ukrainian troops will be made to leave Russia’s Kursk region, where it launched a counteroffensive in August, while a contingent of European soldiers, which could include British troops, would be asked to police a demilitarised zone. American troops will not be involved in this contingent. 
• The EU will reportedly be asked to assist Ukraine in its reconstruction efforts, which may cost as much as $486billion (£392billion) over the next decade according to the German Marshall Fund thinktank. 
• The plans will reportedly begin with a phone call between Zelensky and Vladimir Putin in early February, a meeting between the two warring leaders in late February to early March and an official ceasefire declaration of a ceasefire by April 20. 
• A declaration on the agreed parameters for ending the war would then be released by May 9, after which Kyiv would be asked not to extend martial law or mobilize troops.

This essentially gives Moscow most everything it wants – particularly the ban on NATO admission – and so if true the plan is likely to be entertained by Putin.

Zelensky has been complaining that talks about Ukraine between the US and Russia must never happen without Kiev’s representation and input, but Zelensky it seems is being left behind. He’ll likely reject the above ‘leaked’ plan, but for Moscow and Washington that probably won’t matter too much.

🚨🇺🇸TRUMP’S UKRAINE PEACE PLAN LEAKED? INCLUDES CEASEFIRE BY EASTER, NATO BAN FOR KYIV

A leaked peace plan attributed to Trump outlines a Ukraine-Russia ceasefire by April 20, barring Ukraine from NATO membership, and requiring Kyiv to accept Russian control over annexed… pic.twitter.com/tlFfzxHzPl

— Mario Nawfal (@MarioNawfal) February 6, 2025

The most immediate reactions are in gold (lower) and oil (lower)…

developing…

Roblox Corporation reported daily active user data that fell short of analyst estimates tracked by Bloomberg, raising concerns over the platform’s growth trajectory and sending shares crashing in premarket trading.

The number of daily active users on Roblox increased to 85.3 million in the fourth quarter, missing the Bloomberg Consensus estimate of 88.39 million. Bookings during the quarter slightly missed $1.36 billion versus the $1.37 billion estimate. 

Here’s a snapshot of the fourth quarter earnings (courtesy of Bloomberg):  

• Daily active users 85.3 million, estimate 88.39 million (Bloomberg Consensus)

• Hours engaged 73.5 billion, estimate 19.42 billion

• Bookings $1.36 billion, estimate $1.37 billion

• Revenue $988.2 million, estimate $967.2 million

• Loss per share 33c

• Free cash flow $120.6 million, estimate $120.8 million

• Cash and cash equivalents $711.7 million, estimate $672.3 million

Roblox provided a lackluster outlook for the first quarter and full year, as growth in the online video game platform appears to be slowing. Meanwhile, the video game industry has been in a downturn. 

First quarter forecast:

• Sees bookings $1.13 billion to $1.15 billion, estimate $1.1 billion

• Sees revenue $990 million to $1.02 billion, estimate $981.3 million

• Sees consolidated net loss $267 million to $287 million, estimate loss $271.2 million

Full-year forecast:

• Sees bookings $5.20 billion to $5.30 billion, estimate $5.1 billion

• Sees revenue $4.25 billion to $4.35 billion, estimate $4.36 billion

• Sees consolidated net loss $995 million to $1.07 billion, estimate loss $972.3 million

• Sees adjusted Ebitda $190 million to $265 million, estimate $1.03 billion

Roblox shares in New York crashed 18% in premarket trading. 

Outgoing CFO Michael Guthrie told Reuters that Roblox’s outlook suggests a third consecutive year of 20% booking growth, even as competitor platforms experience slowdowns. 

“We’re growing at a substantial premium to the overall gaming market. Right now, gaming is barely growing as a category,” Guthrie said. 

Guthrie attributed the weaker growth to very tough year-over-year comparisons, noting that Roblox’s launch on Sony’s PlayStation consoles in 2023 sent new sign-ups higher. He added that the platform’s suspension in Turkey over safety and child protection concerns hampered growth. 

Short sellers have made claims the platform aimed at kids hasn’t done enough to protect millions of users from child predators. 

Meanwhile, a note from research firm Newzoo showed that the US video game industry is in slug mode, having only grown by 2.1% in 2024. 

Last month, video gaming analyst Matthew Ball of Epyllion pointed out how the gaming industry has been in a multi-year slump pressuring developers and publishers, but new “hopes” center around Rockstar Games’ guaranteed mega-hit Grand Theft Auto 6 release this fall that “could re-establish packed video game prices after decades of deflation despite rampant cost growth.” 

While the Fed engages in navel-gazing how much Trump’s tariffs will raise inflation by, and according to Goldman the answer is by a whopping 0.5% to 2.6% (from 2.1% in the absence of tariffs)…

… the rest of the world continues to quietly stimulate its economies by injecting more reflationary liquidity into the system, and this morning the Bank of England was the latest to do so when it not only cut rates for the third consecutive time by 0.25% to a 19-month low of 4.5%, as expected…

… but in a surprise to the market, two of the nine MPC members voted for a bigger, 50bps rate cut, which in turn prompted markets to boost bets on more easing ignoring the BOE’s own phrasing.

The Monetary Policy Committee voted by a majority of 7-2 to reduce #BankRate to 4.5%.

Find out more in our #MonetaryPolicyReport https://t.co/alETrQ281L pic.twitter.com/Vuo5G6m1H8

— Bank of England (@bankofengland) February 6, 2025

There was another twist: in a blow to UK chancellor Rachel Reeves, the BoE slashed its growth forecast saying it now expected the economy to grow by only 0.75% this year, half its November forecast of 1.5% which, would at least justify the rate cut…

… but the BOE also upgraded its inflation forecast, which now peaks at 3.7% because of higher energy prices, and up from the prior projection of 2.8%. In other words, the UK is now in a stagflationary trap, yet in a world where no more pain can be tolerated the central bank’s obvious reaction was to cut rates more.

The bank’s outlook is a bleak backdrop for Reeves, who has presided over a collapse in growth since Labour won the general election last July. The BOE believes the economy contracted 0.1% in the three months to December, the quarter that included Reeves’ tax-raising budget on Oct. 30, and will grow just 0.1% in the first quarter of 2025.

The growth forecast for this year has been halved to 0.75% but picks up to 1.5% in 2026 and 2027, from the prior projection of 1.25% in both years. The bank said its forecast is “not conditional on any change in global tariffs” but that a trade war could depress UK growth by “delaying investment spending and hiring decisions.”

Amid this cacaphony of swirling outlooks, it is no surprise that the MPC signaled a “gradual and careful approach” to future rate cuts, warning of uncertainty due to, what else, Trump tariffs and suggesting in their forecasts that only two more reductions were needed to bring inflation back to the 2% target. 

The addition of the word “careful” to the bank’s core guidance for future easing reflected questions about the global economy, according to Bailey. “We live in an uncertain world, and the road ahead will have bumps,” he said.

“Some domestic inflationary pressures remain and may have eased a little more slowly than we expected last year,” Bailey told reporters after the decision. “And that reaffirms the importance of taking a gradual approach to the withdrawal of monetary policy restrictiveness.”

Despite Bailey’s cautious languages, traders focused on the calls from two policymakers for a sharper reduction, adding to bets on future interest-rate cuts. Money markets are now favoring three more 25-basis-point reductions this year.

That hurt the pound, which extended declines versus the dollar dropping as much as 1.2% to $1.2361. It was the worst-performer among major currencies on Thursday. Two-year gilt yields fell as much as seven basis to 4.07%.

In response to the rate cut, Matthew Landon, strategist at JP Morgan Private Bank said that “at the margin, we interpret this is a green light for the market to price a lower terminal rate.” He added that “today’s cut from the Bank of England was broadly expected, though the accompanying statement contained some mixed signals.”

The MPC’s decision to reduce its rate to the lowest level since June 2023 represents a reprieve for the more-than-half-a-million homeowners coming off five-year fixed mortgage deals this year. Reeves called the decision “welcome news,” but expressed disappointment with the broader outlook provided by the bank saying she was “still not satisfied with the growth rate.”

Rob Wood, chief UK economist for Pantheon Macroeconomics, said he placed “more weight” on the bank’s hawkish inflation forecasts, a relatively strong pay settlements survey and its overall guidance “than the votes of two outliers.”

Bailey seemed to support that view in remarks to reporters after the decision: “I would not overinterpret any other moves in voting patterns,” he said, adding that “it’s important that the view on the future path of interest rates is based on the economic fundamentals.”

Also behind the change was a downgrade to the bank’s estimate of UK growth capacity, which makes faster growth inflationary. It halved its estimate to 0.75% this year but expects potential growth to return to 1.5% from 2026. The bank blamed the downgrade on persistently weak productivity and suggested Labour’s increased spending on the National Health Service may make the position worse.

There were no material changes to the bank’s forecasts following Reeves’ recently announced plans to boost growth by relaxing regulations and waving through infrastructure projects.

“It is hard to see the Bank of England materially stepping up its pace of easing until it sees how the increase in National Insurance is digested by the economy in the spring,” said Luke Bartholomew, deputy chief Economist at Abrdn. “However, the Bank’s signals today suggest there is scope for several more rate cuts this year, given the weak growth outlook, and we continue to see rates below 3% over the next two years.”