"Deckchairs" On The Titanic?
By Michael Every of Rabobank
The conclusion to yesterday’s Global Daily was that we are still in a systemic metacrisis. True, many market metrics don’t show it - but how many deckchairs told the Titanic’s passengers they were heading for the iceberg? Markets have a vital role, as do chairs, but expecting them to reflect the potential enormity of what’s going on could end up with you being in very cold water.
Here are two recent headlines to send a shiver down spines: ‘Fear and loathing come for Bitcoin as big investors ponder selling’ (Australian Financial Review); and, ‘It’s time to sound the alarm on growing fiscal and financial risk’ (Financial Times) as “Rising public debt is one concern - another is how it is being financed.” Of course, things look healthier in other areas.
Let’s continue with central banking. The RBA Governor said rates might have to go back up if inflation does. Who knew? Not the RBA or the markets reassured by its projections. Trump says he’ll nominate the next Fed Chair in early 2026’: it seems Hassett is frontrunner. That opens the door to new Fed purpose as well as personnel. Markets are slow to grasp the full implications.
Russia said talks with the US about a Ukraine peace plan were “constructive”, but “no compromise” had been reached on territorial issues. However, we see serious concerns this ends up in an ugly --and expensive-- deal which weakens Europe. Pressure is also increasing for NATO to spend more, faster: but with whose money? The European Commission is making a late offer to win Belgian backing for its Russian asset loan scheme, which the ECB is refusing to back - critics argue it’s a de facto asset confiscation that could damage Europe’s reputation as well as ensuring there’s no peace deal. It is, in effect, ‘victor’s terms’ when Europe has won nothing.
Worse, in response to Europe’s hardline political rhetoric and slimline actions, Putin warned that he doesn’t want war, but if Europe does, Russia is ready - and will defeat it. That’s as Ukrainian drones attacked their third Russian shadow fleet ship this week and Putin stated he will retaliate against Ukrainian shipping and those countries helping it, i.e., Europeans. There’s little middle ground between those two outcomes, but markets are assuming a geopolitical median.
Meanwhile, Europe bewails it “would have given almost anything for peace, but Beijing had a different calculus” - including siding with China vs. the US (where The Economist says ‘Trumpworld thinks Europe has betrayed the West’ – watch Macron in China for more on that ahead); and India, which the EU wants to build deeper ties with as a counterbalance, just ratified a strategic defence partnership with Russia.
The Honduran election currently has the centrist candidate whom Trump didn’t want to win ahead, promising fireworks(?) We are all waiting to see what happens in Venezuela. US lawmakers say they will force a vote on the War Powers Act if Trump attacks it, but the current -anti-terror designation may be workaround – and Trump just said any country trafficking drugs into US could be attacked. That includes a few famous names.
Trump signed a bill to deepen US-Taiwan ties, as the island’s opposition party blocked government plans to increase defence spending. That’s as tensions between Japan and China over PM Takaichi’s recent comments continue to remain high. Even the 1951 San Francisco Peace Treaty between the US and Japan is being drawn in --China publicly rejecting it-- with potentially worrying parallels to the historical legalese heard around the Russia-Ukraine issue before February 2022. If peace treaties are no longer valid, borders can only be set by threat of or actual force.
That’s as a new Chinese naval flotilla, including an assault ship, is in the Philippines Sea and may be heading for Australia, the latter armed with dangerously high house prices. If you think markets are pricing for these kind of grey rhino risks --how?!-- ask your trader or broker what their view of the 1951 San Francisco Peace Treaty is. I’m sure it will be enlightening.
In the Middle East, a new Israel – Hezbollah confrontation appears worryingly close. Whether that spreads to Iran remains to be seen: ‘optimists’ suggest it’s a story for 2026. Markets are better at pricing those kind of oil risks and seem relaxed so far.
In geoeconomics, floods in Thailand have paralyzed IT goods trade flows globally; US Treasury Secretary Bessent praised Bank Santander for pulling its credit lines from oil trader Gunvor following US claims that the firm, now with new leadership, was a ‘Kremlin Puppet’; Costco is suing the Trump admin for “full refund” on its tariffs, upping the ante; Macron wants to rebalance trade with China as it floods Europe with imports --how?-- as German firms are doubling down on their investments in China; China’s state media boasted its “dirt cheap” hypersonic missiles could upend global defence markets; and Russia said it’s ready to address India's concerns over their massive bilateral trade deficit – see how trade deals and defense pacts go together?
In the (political!) economy, Michael Dell donated $6.3bn for ‘Trump Accounts’ for children – patriotism, or akin to EM billionaires whose governments ‘encouraged’ them to ‘share the load’? The Trump admin also took a $150M stake in chip startup, a once shocking headline already becoming normalized. Yet overlooked by markets, because it isn’t a number on a Bloomberg screen, China's local government debt has reportedly risen to $18.9tn, implying total public debt to GDP is far above 200% and rising, vs. the US’ ≈100% and rising, with China’s private sector debt also around 200%, as in the US. That underlines *China’s structural* necessity to maintain capital controls and a vast, neo-mercantilist trade surplus. The FT touched on that recently; then it moved on to play with the next shiny bauble rather than nailing down the ensuing logical conclusions as principles for its flow of policy recommendations. But their deckchair has a wonderful rear view.
In (economic!) politics, two former EU political heavyweights, Mogherini and Sannino, are in custody over a fraud probe. The UK is mulling a ban on crypto cash in politics, which will put Reform UK’s Farage in the firing line; the UK’s now-headless Office of Budget Responsibility said it had warned the Treasury over budget ‘misconceptions’ (like a deficit being a surplus); and UK jury trials are to be scrapped for crimes with sentences of less than three years, reversing ancient precedent, to make the trial process 20% faster. In France. ‘Macron denies 'Ministry of Truth' plan in standoff with far right’ (Euractiv). In the US, a new immigration crackdown and perhaps a global travel ban loom. India’s government is demanding the installation of state apps on all smartphones; and ‘China looks to AI and big data to guard against Western values’ (SCMP), as Xi “tells Politburo that new technology should be applied to promote socialist ideology.” How do markets price for all the above – or do none matter(?)
To conclude, even if some deckchairs are collapsing, we can continue to sit comfortably on most of them for now. However, that doesn’t mean we shouldn’t be thinking about the direction of travel and what may lie ahead of us. It isn’t an iceberg per se, and there will be both upsides and downsides. Just don’t assume it will be plain sailing.
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