The EU Holds a Target on its Head...
- Marc Bentin
- Apr 2
- 8 min read
BentinPartner Weekly
Today is the so called “liberation day” of US President D. Trump and for as much as I would like to look elsewhere and talk about something else to avoid talking about divisive politics, there is frankly nothing else to talk about of substance and relevance to financial markets than “speculation” about what D. Trump’s decisions will be today.
D. Trump is unpredictable and we can only speculate about what he will announce today. But one thing is sure; tariffs and probably steep ones are coming…
Taken in isolation, tariffs are stagflationary and the more we will get of them, the more short-term stagflationary risks will build in the US economy and beyond…
From a pure “trading perspective” and for the short-term reaction today, I think that a lot of risk premium has been built around this specific announcement and that the US treasury, the Fed and “working group on financial markets” are very much aware of the risks, with lots of shorts around (especially among CTA’s), which bodes well for a relief rally today…but I could be completely wrong (just in case). The reaction of the USD is more uncertain but down the road, the US administration is seeking a lower USD (along with lower yields) and more of both these market developments could are the path of least resistance, in my view.
Having said that, and from a broader perspective, my intuition (or 50cents to give it some value) is that today will look like “Sanctions Day” for Europe, more than for others. I will try to explain why below.
Europe enters this negotiation from a position of weakness.
Europe is trapped, having lost international competitiveness and being forced to absorb much higher energy prices which coerces, all other things remaining equal (even without additional tariffs), entire industries to relocate where the cost of energy and regulation is cheaper.
Europe holds the short straw of any prospective peace deal between Ukraine and Russia (assuming it would support one) and will be burdened with the obligation to fund both the war and the peace (reconstruction) of Ukraine, on its own, with the savings and at the expenses of already impoverished European citizens.
Europe is cornered, having to import gas at double the price from the US (or from India with a mark-up to…oil sourced in Russia) while Denmark readies to defend Greenland with F35 planes that can be disconnected from Washington.
Europe is weakened politically, having lost much ground and credibility in Africa and in the rapidly emerging “Global South”.
We could argue that it would be unfair to shoot at the ambulance but D. Trump is not known for rewarding weakness.
And that is not nearly all...
Europe enters today with a "target" on its head...
Presidents Putin, Trump, Erdogan and Orban share the same ideology and personify the return of autocrats in the leadership of the world. We may regret it but it won’t change a thing. Europe responds in its own very pernicious ways by defining Democracy as a perma-liberal-globalist-socialism…curtailing free expression, cancelling elections (Romania), closing TV channels (France) and rendering ineligible, politicians that are now most favored by EU citizens (Romania and now France which rendered M. Le Pen ineligible for the Presidential election of 2027), ignoring the fact that the majority of citizens want change, including and possibly, to deliver a softer version of the Trump revolution.
What President E. Macron likely does not (or faints to not) understand is that D. Trump abhors Europe or rather, the European Union, as the French President seems solely geared towards the personal objective or pretension to become the Master of Europe.
JD. Vance in his recent speech at the Munich conference laid bare in no uncertain terms the US official position towards Europe which he considers as having lost its way, abandoned its values on family, religion and culture, becoming decadent and now standing as the last bastion of a “woke culture” that the US administration is at war against and of which E. Macron officially became the first European Ambassador when he stewarded the inaugural ceremony of the Olympic games, featuring a blasphemous parody of the “Sainte Cène” with “drag queens”, hurting the feelings of Christians, and which was orchestrated to be shown to the entire world.
At this important juncture, one should understand the importance of the link between ideology, politics, economics (and markets) and tomorrow will be retribution day for Europe, I think a little more than for others…
President Trump repeated that he thinks Europe was made to “s…w the US”. This is historically incorrect as the EU, perhaps not as we know it today, but at its inception, burgeoned in the head of US President Roosevelt to make Europe a “client” rather than a perpetual battlefield.
The “fame” of J. Monet (considered as one of the leading “founding father” of Europe) was indeed established in London and later in the US (including as an advisor to President Roosevelt during WW2) where he established his quarters instead of serving in the French military for which he was considered “inapt”…until 1918, on the eve of liberation day (the true one…), initially to save the family Cognac business and subsequently to start a career in the City and on Wall Street before entering the political sphere of influence and gaining his reputation as the veneered “founding father of Europe” along with R. Schuman who served with both the French and the German military uniforms.
This set the scene for the true “historic” and less than “heroic” early pedigree of one (and actually two) of the three “founding fathers” of Europe who, probably and undeservedly for this reason alone, rests in the Pantheon on the decision of French President Mitterrand, next to true war heroes.
J. Monet’s US mentorship is an historic reality…
...all the way down to his famous Memoirs, which were not written by the man himself (he did not like to write) but by several historians of Science Po in Paris, courtesy of a 5-year funding program from the US Ford Foundation.
As Ph. de Villers wrote in his latest (blockbuster) book « Memoricide », “L’idee que l’Union Europeenne soit née de la Resistance est une contre-vérité historique. Accuser les eurosceptiques de pactiser avec la peste brune est une ignominie ». (“peste brune” generally qualifies “far right”-> “neo nazi”-> “Hitler-like and Putinolâtre sympathizers”).
This would just be the posture of a Eurosceptic (ready to be cancelled or ignored) if Ph. de Villers (the brother of Pierre who is a retired and admired General, within the French army and beyond, author of numerous inspirational books and who was forced to resign by President E. Macron at the beginning of his first mandate for complaining “in private” about cuts in the military budget) had not met French President Macron at the Elizée Palace, telling him after evoking this intellectual dishonesty;
“Les gens ne croiront jamais que la vérité officielle qui n’est pas forcément la vérité historique. Souffrez cher Philippe, que cela nous serve. Et que cela vous déserve. Personne ne vous croira… » (P.258, Ph. De Villiers, "Mémoricide", Octobre 2024).
At a particularly important time in world history when the French people are being told to “prepare for war”, this one exchange will serve as an eye opener. At least it was for me.
Quoting Philippe de Villiers about E. Macron; “He lies, knows that he lies, knows that we know that he lies …and he still lies”.
Fast forward to today, Europe now stands in the hair of D. Trump, first and foremost perhaps for ideological reasons.
No later than this week end, the US administration sent a directive to European companies saying that if they were not cancelling their DEI programs, they would not be dealing with the US either. This was a very Trumpian, excessive and expressed that way, probably unacceptable injunction (similar to the strongly desired annexation of Canada or Greenland) but it also serves the purpose of showing where we stand in the line of fire of the US administration.
S&P500 gained 0,3% (-4,3% YTD) while the Nasdaq100 gained 0,8% (-7,5% YTD). The US small cap index was unchanged (-9,7% YTD).
The equally weighed SP500 Index rose 0,1% (-1,0% YTD), underperforming the S&P500 by -0,2%.
Cboe Volatility Index dropped -2,3% (25,5% YTD) to 21,77.
The Eurostoxx50 gained 1,3% (8,8%), outperforming the S&P500 by 1%.
Diversified EM equities (VWO) gained 0,3% (3,1%), matching the S&P500.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,1% (-2,9% YTD) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) was unchanged (1,7% YTD).
RUBUSD gained 0,5% (33,8%). INRUSD gained 0,1% (-0,1%). CNYUSD gained 0,0% (0,4%). ZARUSD dropped -0,2% (2,0%). MXNUSD gained 0,2% (2,4%).
EURUSD dropped -0,3% (4,3%). EURCHF was unchanged (1,5%). EURJPY dropped -0,3% (-0,6%). EURGBP dropped -0,1% (1,0%).
10Y US Treasury yield dropped -6bps (-38bps) to 4,19%, with the 10/2 spread at 29 bps (-5,9).
10Y Bund yield dropped -4bps (32bps, Z-score -2,3) to 2,69%. 10Y Italian BTP yield dropped -4bps (27bps, Z-score -2,3) to 3,79%, matching Bunds.
US Investment Grade Average OAS dropped -1bps (18bps) to 1,05%. US High Yield (HY) Average Spread over Treasuries dropped -4bps (58bps) to 3,45%.US High Yield (HY) Caa Average Spread over Treasuries dropped -2bps (116bps) to 6,74%. USD Repo Govt GC ON closed at 4,46% while the US Federal Funds Effective Rate stood at 4,33%.
XAUUSD gained 1,4% (19,2%) while Silver dropped -0,8% (17,1%). Major Gold Mines (GDX) dropped -0,4% (35,1%). Bitcoin gained 1,2% (-9,6%).
Goldman Sachs Commodity Index gained 0,1% (3,4%). WTI Crude rallied 2,7% (-0,7%). COPPER (COPA IM) gained 0,2% (18,4%).
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