What the latest political plot twist means for markets

plus, the chorus of warnings, Circle, Japan, jobs, trade and more...

“Wisdom comes from experience. Experience is often a result of lack of wisdom.” – Terry Pratchett ||

Hello everyone, and happy Friday! What a lot of drama yesterday… Let’s hope we get to recover and recharge over the weekend, because chances are there will be more next week. 😕

The US official payrolls report for May came out JUST as I was about to press “publish”, so rather than delay the send, I’ll comment in more detail on Monday – but, at first glance it looks like the Federal Reserve doesn’t have to freak out about the US jobs market just yet. As I type, markets are furiously walking back their rate cut expectations.

IN THIS NEWSLETTER:

• What the latest political plot twist means for markets

• Others pile in

• China-US call

• Circle IPO

• Macro-Crypto Bits: jobs, trade, markets, Japan

If you’re not a premium subscriber, I hope you’ll consider becoming one! You get ~daily commentary on markets, tokenization, regulation and other signs that crypto IS impacting the macro landscape. As well as relevant links and music recommendations ‘cos why not.

WHAT I’M WATCHING:

What the latest political plot twist means for markets

For regular X scrollers, yesterday was even crazier than usual, and that’s saying something.

I am, of course, referring to the Trump/Musk public breakup which marched right into unhinged viciousness. Cringe and uncomfortable for sure, but also jaw-droppingly gripping with memes and jokes adding sparkle to the drama.

We are seeing the social media-triggered transformation of politics play out in real time – this is not new, but yesterday it burst onto the main stage, and once we dust ourselves off from the abrupt plot twists, there is much to digest on where the seat of power actually lies.

For markets, the bromance breakup is significant.

The public fight will probably blow over, since neither individual appears to have a history of holding grudges. But we can’t unsee what we saw: if President Trump, with a majority in both chambers of Congress, can’t fulfil his electoral promise of reducing the deficit, then no-one can. And now the X mainstream crowd is paying attention.

So are international investors who are reasonably worried not just about the value of their US holdings, but also the currency risk and the political instability.

Yet there does not seem to have been an immediate market reaction, outside the staggering drop in Tesla’s share price which suffered its largest one-day drop ever.

(chart via Bloomberg)

Late last night tempers seemed to cool down, and Trump aides have said there will be a call between the two today. This could bring some relief – but, I repeat, we can’t unsee what we saw.

Others pile in

Beyond Elon Musk calling Trump’s tax bill a “disgusting abomination”, the number of prominent voices sounding the alarm is climbing. Yesterday, Citadel Securities President Jim Esposito said at an event that the US deficit and mounting debt levels were a “ticking time bomb”.

BlackRock CEO Larry Fink, speaking at a different event yesterday, said the US was “going to hit the wall” unless the economy could grow enough to offset higher deficits.

And former Treasury Secretary Lawrence Summers said yesterday that the pace of debt accumulation from the world’s largest debtor was “putting at risk its status as the world’s greatest power”.

All this comes a few days after JPMorgan CEO Jamie Dimon said that a crack in the bond market was “going to happen”.

And Goldman Sachs President John Waldron said at a conference last Thursday that tariffs were not what bond markets were worried about – it’s the US fiscal outlook.

Will any of this be enough to stall the tax bill and its spending promises? I don’t know – but yesterday’s public rift between the US President and his wealthiest and arguably most influential supporter for sure threw a wrench into the Administration’s disregard for market concerns.

China-US call

I confess I was skeptical, but it looks like the Trump-Xi call did happen after all – although, the Chinese spokesperson for the Foreign Ministry has made sure we all knew who was the more eager. “President Xi Jinping took a phone call from US President Donald J. Trump” is some boss-level signalling.