Weekly Sumary 30/11

There have been quite a few interesting events to analyze this week, and below I list the most noteworthy news. Let’s get started:

• Donald Trump has announced his intention to impose a 25% tariff on imports from Canada and Mexico, in addition to a 10% tariff on products from China. This move, which could violate the USMCA trade agreement, aims to pressure these countries to strengthen control over drug trafficking—particularly fentanyl—and irregular immigration to the United States. The proposal also includes measures that could disrupt existing trade relations with China, such as ending its status as a “most-favored nation.”

  The initial impact has already been felt in global markets. The US dollar strengthened significantly against the Mexican peso (+1.6%) and the Canadian dollar (+1%), while Asian and European markets saw declines. If implemented, these tariffs could destabilize global supply chains, raise costs for US consumers, and worsen international tensions.

  Criticism from Mexico has been swift. Government representatives have emphasized the need to address border issues through bilateral mechanisms and have warned that trade retaliation will only harm the economies on both sides. Canada, while more diplomatic, has also expressed concern, with Prime Minister Trudeau discussing the matter directly with Trump in a call he described as “constructive.”

  China, on its part, has adopted a more defiant stance, highlighting its recent efforts to curb exports of fentanyl precursors following previous bilateral agreements. Beijing has warned that a trade war would hurt all parties and reiterated its willingness to cooperate, as long as mutual respect and equality in negotiations are maintained. However, with an economy weakened by a prolonged real estate crisis and stagnant domestic demand, China also faces significant challenges in this scenario.

  

   

  The strategic backdrop appears clear: Trump is using these threats as a pressure tactic to renegotiate the USMCA ahead of the scheduled 2026 review under its “sunset” clause. However, this strategy carries considerable risks. The measures could not only provoke trade retaliation but also erode trust in the United States among its trade partners, prompting Canada and Mexico to diversify their markets toward Europe or Asia. From a broader perspective, this protectionist policy is not without internal costs, and it is unlikely to be fully implemented. While it may generate political benefits among certain segments of the electorate, particularly in key states for the upcoming elections, the long-term economic implications are profound. An increase in consumer prices and greater volatility in global markets could neutralize any short-term gains.

  

   

• Scott Bessent, nominated by President-elect Donald Trump to be Secretary of the Treasury, has proposed an economic plan called “3-3-3” with the goal of reducing budget deficits, stimulating economic growth, and increasing energy production in the U.S. The plan consists of three key objectives: reducing the budget deficit to 3% of GDP by 2028, increasing real economic growth to 3% annually through deregulation policies and other pro-growth measures, and increasing U.S. energy production by the equivalent of 3 million barrels of oil (this has been the least understood point, as it’s not possible to increase 3MB/d of crude oil production, and Bessent has clarified that it’s oil equivalent, meaning gas) per day.

  Inspired by former Japanese Prime Minister Shinzo Abe’s “three arrows” plan, Bessent believes that increasing energy production would help reduce inflation expectations, especially since energy and gasoline prices are major contributors to inflation indexes. He also advocates for a deregulation policy that would allow the private sector to take a more active role in the economy, alleviating pressure on the government.

  In addition, Bessent suggests that, in order to reduce deficits, stricter control over public spending is necessary, with cuts in areas like the Green New Deal, without affecting programs like Medicaid, and proposing a freeze on discretionary spending, except for defense. Regarding tax cuts, Bessent also highlights the negative impact of high deficits on national defense capacity, warning that public debt reduces the country’s ability to maneuver in crisis situations. Although he acknowledges that mandatory spending, especially on Social Security and Medicare programs, is a major driver of deficits, he proposes focusing on controlling discretionary spending in the short term, leaving welfare program reform for a future administration.

  This is the most important and transformative appointment so far, and much of Trump’s program will depend on the success of this secretary.

• The announcement of a ceasefire between Israel and Hezbollah, mediated by the United States and France, marks a significant shift in the prolonged conflict between the two along the Israeli-Lebanese border. The cessation of hostilities, which came into effect on Wednesday, aims to end a confrontation that has left thousands of victims since it began as an extension of the war in Gaza last year.

  President Joe Biden stated that this ceasefire is intended to be permanent and reiterated that Hezbollah will not be allowed to rebuild its infrastructure near the Israeli border. Israel will begin a gradual withdrawal of troops within 60 days, while the Lebanese army will assume control of the southern part of the country to ensure stability in the region.

  The agreement has strategic implications for Israel, which intends to focus its efforts on the Iranian threat and allow for the recovery of its military after months of conflict. Netanyahu emphasized that Israel will respond forcefully to any violations of the ceasefire and highlighted the significant damage inflicted on Hezbollah, including the elimination of key leaders, the destruction of infrastructure, and the neutralization of thousands of fighters.

  Despite the optimism generated by the agreement, the hours leading up to the ceasefire were marked by intense bombings in Lebanon and rocket attacks toward Israel. This reflects the inherent tensions of the conflict and the fragility of the truce.

• The Biden administration has proposed a measure that could transform access to obesity medications, such as Novo Nordisk’s Wegovy and Eli Lilly’s Mounjaro. The proposal aims to expand coverage for these drugs through Medicare and Medicaid, which would benefit over 7 million people and reduce their out-of-pocket costs by up to 95%. If approved, this move would take effect in 2026 and could change the dynamics of the costs associated with these medications, which currently average $1,000 per month without insurance.

  The proposal comes at a critical time, with growing evidence that these medications not only help reduce weight by an average of 20%, but also prevent type 2 diabetes and reduce the risk of heart attacks and cardiovascular deaths. The potential impact is significant, not only for patients but also for public finances (and private finances for the companies producing them). This measure is estimated to add $36 billion to federal spending over the next eight years, according to the Congressional Budget Office.

  The political context adds complexity. The incoming administration of Donald Trump could block the proposal, with Robert F. Kennedy Jr., his nominee for Secretary of Health, expressing skepticism toward these therapies and arguing that obesity should be fought with healthy habits, not medications. If approved, the demand for these therapies could experience another surge, justifying and projecting the high growth of these pharmaceutical companies and their associated valuations.

  

   

• Since Russia invaded Ukraine, Europe has been grappling with an energy crisis without fully acknowledging its situation. It has been assumed that the drop in gas prices and the favorable weather were results of a successful strategy, when in reality, it was more a matter of luck. Now, the situation is worsening, with an upcoming winter marked by high gas and electricity prices, which will impact both businesses and consumers. Manufacturing plants continue to shut down, and households face rising energy costs. Although gas prices have decreased from the 2022 peak, they are still 130% higher than the average of the last 10 years. Prices in Europe remain high compared to those in the United States, which undermines the competitiveness of European companies. Despite policies such as energy saving and the increase in renewable energy, the region remains dependent on Russian gas, even though direct imports have decreased.

  

   

  The autumn weather, characterized by periods of calm and dry conditions, combined with increased competition for liquefied natural gas (LNG) in Asia, is draining Europe’s gas reserves. Although reserves remain high, the downward trend is clear, and in 2025, Europe will face the need to buy more gas at high prices to fill its storage.

  

   

  The EU has deceived itself into thinking it has resolved its dependence on Russian gas. Despite reducing pipeline gas imports, it remains a key player in the importation of Russian LNG. Furthermore, proposals to diversify with U.S. LNG are unfeasible in the long term, given the U.S. production commitments and the high prices Europe would have to pay. In summary, the EU still relies on Russian sources and has failed to secure a long-term energy strategy free from economic and moral risks. This year, it seems the odds are not in its favor, as the gas withdrawals from storage are the highest on record for November. In fact, the trend is forecasted to continue in this direction, with withdrawals in December predicted to be +14% YoY.