US exceptionalism is fading in the data, but is still alive in
markets. S&P 500 trades at 23x, 15% above the 10 year average. USD real exchange rate is at 40 year highs, despite the US having grown slower than most of Asia for the past 20 years. Yet, both these trends are now reverting fast. End/

Monetary policy is also constrained because US inflation still runs above target and stopped slowing in late 2023. A trade-induced slowdown is a negative supply shock, so it would be inflationary at least in the short term. This will leave the Fed in a tough spot. 6/

Fiscal policy is constrained because the US debt is high and bound to increase on a growth shock. Interest costs are just shy of 3% of GDP, laving little space for peimary spending. The rhetoric from the Treasury aligns with a lack of urgency regarding supportive fiscal policy. 5/

Leaving aside campaign promises, the actual policies that have been implemented so far are not growth-positive. But if the US economy slows down, the policy space to react is very limited. 4/

Historically, uncertainty means recession. When uncertainty is too high, firms temporarily and suddenly pause investment and hiring. Output and employment tend to fall quickly as a result. US policy uncertainty is at the second highest level of the past forty years. 3/

US economic data are deteriorating meaningfully. Jobless claims are on the rise, pushing the unemployment rate above 4%. Economic surprises have been trending down steadily since November. Confidence is shaky and real time gauges of GDP are dropping sharply. 2/

German Bund reacts to the historic announcement of up to 800€ billion in military and infrastructure spending - which quite frankly trumps the EU RearmEU plan.

So far, Taxonomy-linked green bonds have been largely issued by already green companies, in sectors where demonstrating greeness is easier. In my view, this shows the Taxonomy framework doesn’t lend itself naturally to be used for transition finance.

#Econsky

🔗: www.bruegel.org/policy-brief...

Equity futures down following the announcement of US tariffs on Mexico, Canada and China over the weekend. The euro also not liking the idea that Europe will most likely be next on the list.

The gap in performance between the S&P 500 and the S&P Global Clean Energy, which opened up with the rates hikes, widens further towards the end of the year as uncertainty grows on the global green policy drive.

An interesting element that doesn’t get nearly enough talk is the extra-territoriality of EU climate regulation. Foreign firms will be brought in scope of CSDDD if they work in the value chain of EU firms. That can have major political implications. Here’s e.g. Qatar not being very subtle about it ⬇️

Things you don’t see everyday: on the fall of Barnier’s government, the French yield curve moved above the Greek one, all the way up to the 10y.

Has the Trump rally plateaued?