Mar-a-Lago Accord
Wall Street faced a broad sell-off on Wednesday, led by a steep downturn in tech stocks as trade tensions escalated and investors digested cautious remarks from Federal Reserve Chair Jerome Powell.
The S&P 500 closed 2.2% lower, the Dow dropped nearly 700 points, and the Nasdaq sank 3%.
Powell’s speech in Chicago added to the market's anxiety, warning that tariffs could spur higher inflation and slower growth, creating a dilemma for the Fed’s dual mandate.
Investors were disappointed by the lack of a clear signal on future rate cuts, pushing major indices to session lows.
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As we've discussed over the past week, among the objectives in Trump's negotiations with global trading partners in the coming weeks and months, may be coordinating a global effort to put China in the global trade "penalty box" – a global retaliation against China's multi-decade predatory economic strategy.
According to a piece The Wall Street Journal ran that is indeed the plan. And they say Bessent is leading it.
So, Trump has quickly drawn most of the world back into alignment with the U.S., using the U.S. consumer as leverage. Now it's said that they will "extract commitments from trading partners to isolate China's economy for reductions in trade and tariff barriers."
With that, let's take a look at how this is shaping up, and how it might end in another Plaza Accord type moment.
Back in my November 26th note, (Three Arrows), when Bessent had just been named Trump's Treasury Secretary nominee, we talked about the dealing with China issue, and some of Bessent's pre-nominee comments, particularly where he made the case for a "large-scale globally coordinated currency, fiscal and monetary" agreement.
The case was largely centred around China and China's predatory trade practices, driven by its manipulated (weak) currency, which have resulted in massive global trade imbalances, and China's accumulation of the world's largest pile of foreign currency reserves ($3 trillion).
With that in mind, Trump's Chairman of the Council of Economic Advisors is a guy named Stephen Miran. He wrote a report on "Restructuring the Global Trading System" in November of last year. A month later, Trump picked him to be his top economist.
Within his guide to restructuring global trade: A "Mar-a-Lago Accord."
Here's what it looks like: Leveraging tariff threats and the United States' role in global security and financial stability, the plan includes our trading partners "burden sharing".
In this case, the dollar's role in the world as the reserve currency provides benefits to the world, and benefits to the U.S. but also drives persistent and unsustainable U.S. trade deficits.
If we look at the behaviour of gold and the dollar, the market seems to be sniffing out such a deal, to include an agreement to devalue the dollar.
Gold is up 13% since Trump's 90-day pause on tariffs just one week ago.
The dollar is down 4%.
So "burden sharing" means accepting tariffs or opening your markets, boosting your defence spending, buying more from the U.S., investing in American manufacturing, and buying U.S. Treasuries.
The "Mar-a-Lago Accord" idea seems to be materialising
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