In the past three months, I haven’t written much positive about market developments – especially not regarding American stock and bond markets and the dollar.

BUT the last 24 hours have brought positive news – and this brings some calm to the markets.

I want to highlight two very important statements from Donald Trump himself:

“I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates. This is the perfect time to lower interest rates. If he doesn’t, is it the end? No, it’s not.”

And secondly:

“The tariff on China won’t be as high as 145%. It’ll come down substantially, but it won’t be zero.”

These are two clearly important statements. The first is basically an announcement that Trump says he respects the Federal Reserve’s independence, and he cannot force the Fed to lower interest rates.

And the second is that he is prepared to substantially reduce tariff rates against China.

Both make good sense – and indeed are what any normally thinking economist would have urged Trump to do. And yes, all economists would naturally have told Trump to completely stop his tariff madness, but this is definitely a step in the right direction.

The financial markets reacted quite positively – and unsurprisingly – to yesterday’s announcements.

In fact, I’m a bit surprised that the reaction wasn’t even more positive. For what we’re actually seeing now is that those with some economic sense around Trump – probably primarily Treasury Secretary Scott Bessent – have convinced Trump that what he has been doing could potentially have catastrophic consequences for the American economy – and for Trump’s own ability to survive as president.

I simultaneously interpret this as a certain admission from Trump that he has thrown himself into a multi-front war – illegal deportations, war with the judicial system (including the Supreme Court), war with the Federal Reserve, Pete Hegseth’s total chaos in the Pentagon, etc.

And it’s becoming increasingly clear that investors are simply losing confidence in the USA. And in America’s institutions.

But Trump is backing down now. And this is actually the first time in three months.

And in this connection, it’s worth noting that following Tesla’s catastrophic financial report yesterday, Elon Musk also announced that he was on his way out of the Trump administration and DOGE.

All in all, I think we’re seeing rather clear signs of a retreat from Donald Trump. His own chaotic behaviour has simply defeated him.

And that is, in my opinion, quite positive for the American financial markets.

That said, the following should be emphasised:

1. It’s difficult to restore confidence once it has been destroyed.
2. Trump is and remains a “loose cannon” – if we see signs of “recovery” in the markets, Trump can quickly come up with something insane again. He loves tariffs (as he says himself), so he won’t stop talking about them.
3. Even without the Trump chaos, the American stock market – and partially the dollar – already looked overvalued.
4. The coming period will be characterised by extremely negative American economic indicators, which will hardly do much to lift the mood in the stock market.
5. The USA faces massive fiscal policy challenges, and there is nothing to suggest that the Republicans in the House and Senate intend to do anything about it, and Trump has no ideas about what to do (without breaking his promises not to touch pensions and the healthcare system).
6. The Trump administration is clearly marked by massive internal power struggles – and it could get much worse.
7. The prospect of rising inflation AND higher unemployment will significantly weaken popular support for Trump.

FINALLY, given the unrest that has been in the markets, something systemic may have been broken, so there is a risk that new news will emerge, for example losses in banks and financial institutions.

All in all, I believe that Trump’s announcement MUST be taken as fundamentally positive, and therefore it’s also possible that the “haemorrhaging” in American stock markets and in the dollar is over, but I find it very difficult to see much “upside”.

Trump has simply created too many problems for himself.

If I am to become more positive – then something of the following must happen:

1. Trump’s advisor Peter Navarro, Trump’s hyper-protectionist advisor, must be fired, and Treasury Secretary Scott Bessent’s role must be substantially strengthened. It must be clear that it is Bessent who leads economic policy.
2. Defence Secretary Pete Hegseth must be fired and replaced by a former general or similar, who actually has the experience and insight to be Defence Secretary.
3. There must quickly be a significant rollback of the tariff madness. Not just in trifles – but in relation to China, the EU, Canada, Japan and Mexico.
4. The Trump administration must present concrete and radical plans to permanently improve public finances.
5. The Federal Reserve’s independence must be guaranteed. It would be best if Trump announced that Powell will be reappointed in 2026.

It requires quite a bit, but this is the sort of thing that is needed – otherwise there is a risk that the markets will again go into meltdown mode. But Trump has created so much uncertainty that it now requires a lot to restore confidence.

What do you think? Will Trump go berserk again, or can Bessent control him?

…

Links you should have a look at

PAICE – the AI consultancy I have co-founded

“Globale tanker” – if you want to book me for a keynote speech, a lecture or a workshop