Week signals: A voting machine
Plus: watch points for Romania, Germany, Ukraine, Russia, India, Pakistan, and Canada.
This week:
IN REVIEW. Anti-Trump elections, Mr Market votes, sell in May, and lessons from 2007.
UP AHEAD. Centrism in Romania, extremism in Germany, Putin's spring offensive, India's expected reprisal, and Carney's trip to Washington.
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The Week in Review: Wising up to the markets
The week began with a vote for incumbency in Canada. At the time of writing, it appeared to have ended with votes for incumbency in Australia and Singapore.
If 2024 was seen as the year of the anti-incumbent election, 2025 may be seen as that of the anti-Trump election. With the possible exceptions of Ecuador’s Daniel Noboa and Reform UK’s by-election, candidates seen as the greatest bulwark against an erratic US administration and an unstable world order have been rewarded, irrespective of ideology. And while that theory could be tested tomorrow – when Romanians hold a first-round presidential vote that a hard-right candidate is leading (see Week Ahead below) – it shows the limits of MAGA's appeal beyond, well, America, not to mention the likely futility of a project Elon Musk and others have led to create a populist international.
This year will have fewer big elections than last year's wave, but polls to watch in the coming months are the Philippines' midterms (12 May), Poland's presidential and Portugal's legislative elections (18 May), South Korea's presidential vote (3 June) and Argentina's legislative poll (26 October). In each case, there's a Trump-like party or figure around whom decisions will be made. And while these elections may not make a big difference to US politics – around which almost everything currently pivots – they could provide something of a leading indicator as to how foreign governments respond to Washington's trade and security pressure. Big elections will be held in Brazil, Israel, and possibly France next year, not to mention the US midterms. And Trump will still, presumably, be on the ballot.
But there's another voter, with its own leading indicators, that matters even more, and that's the market. Unlike citizens, who vote every few years, markets vote every day and every second. And the voting patterns over the past month have been interesting, to say the least. April saw some of the biggest falls and biggest rises in US financial history. Driven by the Trump trade, April also saw near-historic levels of realised correlation in the S&P 500, meaning whether you bought shares in Apple, American Express or Archer Daniels Midland, your risk would be much the same.
Heading into May, traditionally a terrible month to buy shares (if you invested between May and October you'd have realised a return of 171% since 1993, but if you only invested in November-April you'd have returned 731%, according to Bespoke Investment Group), markets seem decidedly calmer. Earnings season has brought attention back from macro beta to corporate fundamentals. Concessionary noises on trade wars, Jay Powell, and fiscal expenditure have eased concerns of the White House’s erraticism and willingness to drive the US economy off a cliff. Presumably, they are acting as a feedback mechanism to tell the White House that all is forgiven. But should markets be so sanguine?
While we always need to listen to the accumulated wisdom of crowds – whether Mr Market or the median voter – sometimes they get it wrong. The retrace in equity values and bond yields is likely less an indicator that all is well in the US economy and politics than a combination of momentum trading, short covering, and retail enthusiasm (as the “smart” money, institutional and offshore, continues to head for Europe, cash and gold).
There is something reminiscent of mid-2007 in all this. By then, the term "subprime mortgages" had entered the media lexicon. In February, HSBC had announced bad debt write-downs 20% above expectations. In April, New Century Financial collapsed. In July, two Bear Stearns hedge funds went bust. 2008 is often remembered as the year of the financial crisis, but for those who were watching, it was already apparent in 2007 (and to some much earlier). We all know (or should know) that the Trump administration's trade policies are lunacy and lack any clear strategy. That these facts aren't baked into asset prices should be no reason to doubt them.
So, while the market can remain irrational longer than you can remain solvent (politics can do this too), now may seem – from our geopolitical lens at least – a bad time to get back into mainstream market indices, irrespective of the continuing tailwinds from technological advances, lower oil prices, or Friday’s surprisingly strong US jobs print. And while it’s often a good strategy to fade the news and go against the prevailing narrative, there have been few times in history where there were more flashing warnings or policy uncertainty against assets at such rich multiples.
How then to trade Trump? The better question might be how not to. With policy so unpredictable, at least on a short-term horizon, the risks of exploiting the volatility, unless you are an experienced trader, are likely too great. Good surfers look for big waves, but for everyone else, big waves mean big dumps. And those big waves, if nothing else, look set to continue. Some 60 days of the 90-day reciprocal tariff pause remain and during the next two months there’ll be lots of “deals” for markets to celebrate, but also likely lots of disappointment (particularly, we expect, on China). There’s also likely to be a lot of mixed messages and unexpected decisions made on US fiscal policy, particularly in the lead-up to Congress’s apparent 4 July deadline to agree the tax component of their “big, beautiful bill”. And then there’s the ongoing saga of monetary independence, the judiciary versus the executive, the wars in Ukraine and the Middle East, tensions over Taiwan, and the growing transatlantic rift.
Fortune favours the bold. It also favours the cautious.
The Week Ahead
ROMANIA. Watch for the centre ground
Romania holds its second first-round presidential election in a year, after the results of the first one were cancelled on concerns the leading candidate, populist Calin Georgescu, had been boosted by illegal interference from Moscow. Another populist, George Simion, is expected to mop up many of Georgescu’s votes, but while he’s almost certain to proceed to the second round, his likely competitor – either Bucharest mayor Nicusor Dan, former senate president Crin Antonescu, or ex-prime minister Victor Ponta – will be better placed to garner more votes when the final decision is made. All are running as independents and are positioning themselves as compromise candidates of the centre.
GERMANY. Watch for extreme reactions
Chancellor-elect Friedrich Merz will take power on Tuesday once his coalition partner, the Social Democrats, confirm their cabinet choices the day before. Merz’s first overseas visits will be to France and Poland but it’ll be the US he’ll be thinking about, particularly after Washington’s reaction to the German intelligence service’s designation of the far-right Alternative fur Deutschland as an “extremist” entity. Merz should at least be reassured that any European political endorsement by the Trump administration is a kiss of death. The AfD are currently high in the polls but there’s plenty of time to see those levels fall.
UKRAINE. RUSSIA. Watch for Putin’s Spring
Washington has walked-back suggestions that it is leaving negotiations to Moscow and Kyiv – JD Vance has said it will stick around for another 100 days – but Ukrainians will already be feeling bereft on the front line as Russian assaults accelerate. Recent gains over the past few days are less a result of negotiating ambivalence but the warmer weather. After Russia’s advances were halted by frozen mud and a focus on Kursk, they’re now ready to recommence. Putin’s declared ceasefire over his 8-9 May celebration of World War II victory, will only provide a temporary reprieve.
INDIA. PAKISTAN. Watch for day 11
Today (Saturday) is the 11th day following the Pahalgam attack in Kashmir. After expectations of more immediate reprisal strikes on Pakistani territory (Islamabad has been blamed by Delhi for supporting the alleged terrorists), the day is significant as this was the period of time that elapsed before India retaliated to the 2016 Uri attack and the 2019 Pulwama attack. India and Pakistan are both conducting drills in the Arabian Sea. Pakistan has ordered residents in its part of Kashmir to start stockpiling food.
CANADA. Watch for an awkward meeting
Mark Carney will visit Washington on Tuesday, and many of his supporters and detractors alike are spoiling for a showdown with Donald Trump. The meeting is likely to be awkward - we cannot imagine more different leaders - but don't expect a fight. Carney and Trump both have a mutual interest in backing down, and Trump seems to be enjoying the market's reaction to a more accommodative stance on trade. That said, as a warning to Japan, China and others who are also currently eyeing reprives, Trump may judge it worth keeping the pressure on Ottawa, if only for another few weeks.
Michael Feller is Chief Strategist at Geopolitical Strategy. LinkedIn.
(Please note none of this is investment advice).