Newsletter #26: The Week of Ukraine

PLUS: Market jitters

Good morning.

Only two items on our agenda this week. First, an update on the markets from ZeroHedge. And second, a long — very long — update on Ukraine. This was, after all, The Week of Ukraine. It only makes sense to focus on it!

This newsletter’s agenda: Market jitters (free); The Week of Ukraine (paid).

Market jitters

Don’t worry: we’re not about to turn into ZeroHedge. (And yes, did you know that I read the Financial Times? I may know rather little about financial markets, but I’m a very serious boy.) In the United States, the ‘vibes’ have ‘shifted’: markets have been performing relatively poorly since Trump’s election, contrary to the expectations of most. Analysts are now increasingly converging on the outcome for the US economy this year either being highly inflationary or, worse still, stagflation. American businesses, hoping to court a mercurial president who will not accept negative sentiment, have thus far stayed quiet, even on his tariffs, instead paying the Danegeld (or at least making it look like they are, in Apple’s case). But this may begin to change over the course of this year.

US stocks are more or less stable since the beginning of this year, and are down significantly since 19 February, despite a rally last Friday. This contrasts with the strong performance of European stocks, which are up more than ten percent this year. Palantir, one of the best performers in the United States, slumped upon reports of budget cuts at the Department of Defence. Blowout results from Nvidia this week, who posted a 78 percent increase in sales — outpacing even Wall Street’s very optimistic predictions — prevented a rout, but failed to revive enthusiasm in the market as a whole. US defence stocks have performed poorly; meanwhile, European defence stocks have been booming, with some up almost 25% since the beginning of February.

Of course, this narrowing of the gap between American and European stocks is tiny compared to what has accumulated over the past few years. A lot of the change is also the faltering of the ‘Magnificent 7’ stocks, which (as the Financial Times’ Unhedged notes) actually almost alone drove US stock outperformance since the beginning of 2023. In fact, to my surprise, European financials, healthcare, and (even more shockingly) industrials significantly outperformed their American equivalents in this time period. But it is nonetheless interesting, given how much of Donald Trump’s fiery rhetoric has been targeted at the European Union, which seems unlikely to wholly avoid tariffs (at least if we take his statements seriously, which is admittedly a big ‘if’) and will need to find some method, most likely more taxes (if we are being honest), to fund a big rearmament programme.

Beyond the stock market, American growth appears to be slowing — which shouldn’t be that surprising when Trump threatens new tariffs on some random country every other day. American consumer sentiment surveys have been negative. Investor sentiment surveys are much stronger, but the negative outlook among consumers seems to gradually be seeping into investor outlook as well. Some positive reports among manufacturing have been interpreted as an attempt to build up stock and dodge tariffs, rather than anything reflecting good underlying sentiment. Unemployment is mostly stable, though there has been a small uptick, and most expect a bigger increase at some point over the next few months (especially as DOGE continues in its work). Inflation remains sticky. Bitcoin, for those who care, is down after earlier euphoria, though recovered a lot of ground at the start of this month. Gold is up, and by a lot, which also bolsters the case for market sentiment being somewhat bearish

What does this mean? My view is that those of us who are relying upon Donald Trump to bring in a total reset of US immigration policy should be worried. Trump is the sort of person who may plausibly sell out on immigration if he thinks market sentiment is negative (and yes, that includes the stock market, which he has always been excessively interested in, assuming a closer connection between it and actual economic performance than exists in reality). Is it really totally implausible that, if there is a downturn, the agreement reached with American businesses is a watering down of tariffs (good), in exchange for more investment at home (mostly good), and an end to immigration restrictions (very bad)? I firmly believe that Trump will do almost anything to keep the ‘good vibes’ going. This may come back to bite our side — not least because very little has been achieved on immigration thus far anyway, aside from a few showy raids for the press.

The Week of Ukraine