The Trump order

Mr. Trump continues to shape the world to his taste: he has doubled tariffs on Indian imports to 50% because he doesn’t want them to buy oil from Russia. Mr. Rubio, from his negotiation team, gently met with the Swiss delegation — and when I say delegation, I mean two Federal Councillors, including the President herself — to leave the tariffs unchanged at 39%. But hey, the meeting was nice and open to further talks.

Further talks, however, won’t ease worries about the 150–250% tariffs that Trump wants to impose on pharmaceutical imports, and both India and Switzerland are highly concerned. Looking at the car industry — another big victim of the Trump administration — tariffs eventually settled at more reasonable levels, so the hope here is that the same will happen with drugmakers. But of course, because one man decides everything as he wishes — and no one can stop him — uncertainty and lack of visibility will remain on the menu for years to come.

Then, Apple agreed to invest an extra $100bn in US production facilities to please Mr. Trump and ease his rage — because he doesn’t want iPhones produced in China... nor in India! This brings Apple’s total investment promise to a whopping $600bn. Apple shares reacted to the news with a 5% rebound yesterday, showing investors were more relieved to see Tim Cook stay friends with the White House than worried about the company’s margins being smashed by the inevitably higher cost of producing iPhones in the US — note that labour and assembly costs for an iPhone would be at least 10 times higher on US soil.

So, what will probably happen — and I think this is the catch — is that Apple will invest hundreds of billions into US factories, and make sure they are highly automated to require ever less labour. That’s great for AI enablers, of course, but maybe not so great for jobs, which are already taking a hit from the combined impact of AI and trade chaos.

Speaking of AI, the US remains a few years ahead of its closest rival — China — and AI remains one safe space for investors, as Jensen Huang managed to woo the White House over chip exports to China. Jensen says that if the US stops exporting chips to China — and they’re not even exporting the best — the Chinese will just speed up their innovation. Trump has now announced 100% tariffs on chip imports but TSMC, which builds Nvidia chips, will be exempt, because they’re investing in the US. And any other firm investing in the US will also be exempt from the big tariffs. What a world. TSMC just rallied more than 4% to a fresh record high today in Taiwan.

Zooming out to a broader perspective, the US 10-year bond auction saw weak demand yesterday, following a soft 3-year auction the day before. The 10-year yield briefly spiked to 4.28%, but has eased since, while the 2-year yield remains under pressure from rising dovish Federal Reserve (Fed) expectations. The Fed is now expected to deliver its next rate cut as early as September, and with the changes Trump is preparing at the heart of the FOMC, the Fed may be cutting rates despite rising inflation.

And the rising inflation problem is an easy fix — if you just tweak the numbers to make inflation look cooler than it really is. Yet, if investors start believing that US inflation numbers are no longer credible, the $2 trillion TIPS market — Treasuries that track US inflation — could crack. That, in turn, would likely weigh on the US dollar and boost demand for alternative inflation-protection assets like gold, and for some, Bitcoin. Although there’s no statistical evidence that Bitcoin is a good inflation hedge. In fact, the correlation between Bitcoin and US inflation was near flat from 2021 to 2023 — Bitcoin behaves more like a risk asset.

That said, Bitcoin will likely continue to do well alongside tech stocks, regardless of inflation.

Elsewhere, the US dollar is weakening on the back of trade news and dovish Fed expectations. The dollar Index slipped below the 38.2% Fibonacci retracement of its summer rally, marking the end of the summer’s upward trend. It’s pushing below the 50-DMA this morning and could extend losses given the dovish divergence between the Fed and other central banks — where dovishness remains, but is already priced in.

The Bank of England, for example, is expected to announce a 25bp rate cut today, but the vote split will be the major talking point — with rising risks to both inflation and the labour market amid Trump tariffs and Reeve’s tax hikes. Seven out of nine MPC members are expected to vote for a cut, one will likely push for a larger cut, and one is expected to stay put. Another 25bp cut is expected in November, but it will be interesting to see if inflation risks threaten that move.

Any hawkish surprise –  that will play around the language about ‘gradual and careful rate cuts’ - could help support cable, which is rising above its 100-DMA this morning on US dollar weakness. But sterling’s weakness is more obvious against the euro, where the EURGBP is pushing toward its highest level since end-2023, driven by the UK’s deteriorating economic outlook and rising inflation risks, with little room for more fiscal support, and likely more tax hikes in a country already struggling with the recent fiscal squeeze.