Markets Move On From Greenland; What Might Come Next?

Well, that’s another ‘trade war’ that we’ve all survived. 

Greenland, Solved

Once more, we see President Trump’s ‘Art of the Deal’ negotiating strategy playing out. Trump adopts a maximalist position, throws out tariff threats to focus minds, obtains concessions from the other party, and ultimately strikes a deal in much shorter order, and probably on more favourable terms, than would otherwise have been possible. In other words, ‘escalate to de-escalate’ – not a strategy I’d endorse, but clearly one that works.

On the issue of Greenland, the details of the agreement that has been reached with NATO Sec Gen Rutte matter little; which is just as well, as specifics are thin on the ground at this stage. What does matter, for markets, is that the threat of 10% tariffs on various European nations has been unwound, that the tail risk of a tit-for-tat tariff war has been eliminated, and that the narrative around this issue has died. Participants can move on, and finally the hysteria and hyperbole that was doing the rounds over this matter can be put to bed.

Incidentally, there is really no excuse for that at this stage. The Admin’s negotiating strategy should be very clear indeed by now, not only after having lived through over a year of these shenanigans, but also considering that the President wrote his strategy down in a book many years ago!

The Next Market Narrative

That said, now the geopolitical noise is beginning to die down, focus must turn to what may come next. It’s a given that Trump will remain a significant generator of market volatility, and that the President will want to run the news agenda as much as possible. There are a few areas that spring to mind on this front.

Geopolitically, Iran could come back into focus, as protests in the country continue, and the threat of a US military intervention to force regime change also remains on the cards. Potential regime change in Cuba is also increasingly being talked about in DC circles. Elsewhere, there remains the issue of a proposed interest rate cap on credit cards, which feeds into the broader ‘affordability’ drive ahead of this year’s midterms, while there’s every chance that Trump continues his attacks on the Fed’s independence, as we also wait for confirmation as to the identity of who will be nominated to succeed Chair Powell come May.

Focus On Fundamentals

Perhaps the obvious question, given all those moving parts, is what the trade might be here?

Put simply, I don’t think there is one. That’s not to say that there are no trading opportunities at all – in fact, quite the opposite. What this latest charade has proved, once more, is that the single best trading strategy in this realm is to ignore the noise, to not fall victim to the hysteria, and to simply step back and focus on the fundamentals, with the expectation that – in due course – whatever matter markets have got all het up about will settle down, and that the issue in question will be forgotten about almost as soon as it appeared on everyone’s radar.

Right now, those fundamentals continue to make a very robust bull case indeed for risk taking, with the path of least resistance for equities continuing to lead to the upside, boosted by solid earnings growth, resilient incoming macro data, and expectations that both the monetary and fiscal backdrops will continue to loosen through the year ahead. Elsewhere, US growth outperforming that of the RoW should act as a helpful tailwind for the greenback, as the Treasury curve steepens on the Admin’s ‘run it hot’ approach. An approach which, coupled with significant reserve and private demand, should also help to underpin precious metals, with further gains on the cards for gold and silver.