The week is off to a smooth start, the Americans are firing up the barbecue for Memorial Day, and the rest of the world will be orphaned from Wall Street for a few hours. Just before heading off for the weekend, Trump left us a few things to deal with. A new round of tariffs against Europe because negotiations aren’t moving fast enough. And a 25% tax hike for Apple, which refuses to manufacture in the USA. The only sad thing is that none of this had much impact on the markets, since Trump already backtracked on Europe, and nobody really believes his threats anymore—they never go all the way.
Europe
All weekend, I told myself: “Hey, you’ll be able to start your column by saying: new trade war with Europe, the moratorium explodes in less than three minutes.” But nope. We didn’t even have time to get properly scared because Trump slapped those tariffs on Friday night, and in Europe, we were practically already on weekend mode. And as of last night, the President had already spoken with Ursula von der What’s-Her-Name, who came begging for a bit more time to negotiate. Trump granted her his grace and blessing until July 9th. Yay. Back to square one, but now we’ll have to actually negotiate. Yes, because even if Trump did another one of his classic 180-degree flips in less than 48 hours, it’s clear that these “90-day moratoriums” mostly depend on the mood of the White House tenant. If I were the Chinese, I’d get moving and make progress in the right direction, because seeing Trump’s tantrums, it’s obvious the moratorium offered to China will never last the full 90 days. Either they’ll find a solution before that, and it’ll be wrapped up, or things won’t go fast enough for Trump, and he’ll handle it his way.
To put it simply, we went home Friday thinking things might heat up in Europe at the start of the week. And then we didn’t even have time to get scared because apparently, the day is going to start with a bang—we FOUND AN AGREEMENT!!! Well, let’s not cry victory just yet, because it’s still only a 30-day delay and nothing says Trump won’t get mad again in the meantime and flip-flop once more. Still, for now, Europe seems happy, and the first day of the week without the Americans should go smoothly. As for Apple, the stock lost 3% Friday evening, but since the weekend isn’t over in the US, we can’t rule out that the two parties might strike a deal between burgers and hot dogs later today. In any case, one thing’s for sure: the market maintains a hyper short-term view, since it’s impossible to plan ahead due to the mental volatility of our leaders—Trump in particular. Tomorrow will be another day. Until then, we’re flying solo and waiting to see where it all leads, all while knowing Trump never takes a day off and could easily throw a surprise announcement into the mix on one topic or another.
The Japanese bond market under close watch
One of this week’s likely key topics will be bonds. It’s a part of the market we often set aside because it’s not the most exciting thing, and nobody ever got rich buying 30-year bonds, but let’s just say something is happening that deserves our attention. And these “things” might be the early signs of a new crisis that won’t be fixable with a bit of backpedaling—“I tax you, you tax me, I untax you, you re-tax me”—this time it might be more complicated.
Last week we saw that the 20-year US Treasury auction went badly and people are starting to doubt the future of American debt. But the American problem might not be top of the podium in today’s ranking of global financial worries. No, the immediate danger might come from Japan.
In Japan, the 40-year bond yield has turned into an unmanageable tornado. Last week, nobody wanted to buy the debt, and the yield shot up to 3.15%. This was something that paid 1.3% just two years ago and was near zero during the pandemic. We’re starting to think there’s a major problem. The Bank of Japan holds 52% of the country’s debt, and the debt-to-GDP ratio is at levels that make the US look like a model of fiscal responsibility. Japan’s debt is at 260% of GDP, compared to 130% in the US.
But the issue isn’t just about that. Japan also faces a host of other problems, like inflation arriving at full speed—the CPI was announced at 3.6% last week, food prices are rising, and real wages are falling. No need to dig further: the country is sliding into recession. And when we look at 40-year bonds, over $500 BILLION of “safe and sound” investments have taken a 20% hit in just six weeks. A 20% drop on a product that’s supposed to be the conservative part of a family man’s portfolio. Don’t expect me to say this won’t have any consequences. For those who forgot, last summer during the Carry Trade crisis, the VIX hit a top of 65%, and the Nikkei lost 28% between July 11 and August 5. Just imagine if the Japanese debt crisis intensifies. If you want some context, I suggest looking into the 2010–2012 European debt crisis, especially Greece. Let’s hope this is just a false alarm. But looking at the state of Japan’s economic numbers, it’s hard to believe things will end well under these conditions.
In Asia This Morning…
This morning, Asia woke up with a hangover. Once again, it’s the Trump effect with his tariffs on Europe. Then, true to his style—”I threaten, I backtrack, I negotiate, I congratulate myself”—he postponed everything to July. As a result, Asian markets are all tangled up. While most markets were treading water, Japan pulled off a third consecutive day of gains, driven by rumors of new trade talks with the Americans—talks that won’t do anything to fix Japan’s debt (but for now, no one seems to care). Leading the pack was Nippon Steel, which jumped 4% after Trump suddenly decided he loves their acquisition of U.S. Steel. A stunning turnaround from “hands off our national steel” to “long live strategic partnerships.”
Trump also went after his favorite obsession: iPhones not made in the USA. He’s threatening to slap a 25% tariff on anything coming in from abroad with an Apple logo on the back. Apple’s Asian suppliers took a hit: AAC Tech, Luxshare, Goertek, TSMC, SK Hynix, even Samsung all fell between 0.2% and 2%. Hong Kong is down, dragged by BYD, which is getting hammered after an overly aggressive rally—the stock fell nearly 8%. Shanghai is mixed, one index is up, the other down. All this is happening against a backdrop of “we’re still talking with the Americans, but we’re staying cautious,” especially given Trump’s constant flip-flopping on every topic.
In summary:
Trump does Trump: threats, backtracks, forward moves, and mixes up partnerships with takeovers.
Tokyo is laughing, thanks to Nippon Steel, but nothing is being solved on the debt front.
Apple and its suppliers are getting hammered, but we’re counting on Trump to announce something before markets reopen tomorrow.
Europe is cheering Trump’s latest 180, which erased Friday evening’s panic—at least until July.
Nvidia plans to launch a “light” version of the Blackwell chip so it can be exported to China. Meanwhile, they’re the stars of the week, as they report earnings Wednesday after market close. Analysts remain cautious—especially after the recent rebound.
The Week Ahead
This week starts calmly, with the Americans out but Trump ever-present. Europe should open higher with a sigh of relief after the weekend reversal. Trump also postponed negotiations with Iran regarding oil—those talks are now set for July—which has helped oil find support around $60. This morning, oil is at $61.76, gold at $3,376, and Bitcoin is worth $109,000 and change.
On the data front—besides Nvidia’s earnings—we’ll get U.S. consumer confidence, FOMC meeting minutes, U.S. GDP, and PCE, the Fed’s favorite inflation gauge.
So, keep an eye on what’s happening in Japan and don’t take your eyes off Trump’s social media—anything can happen. Have a great start to the week, and see you tomorrow for the REAL start of the week in the wonderful world of finance!
Stay strong and see you tomorrow!
