Trump 2.0 (Weekly summary 15/03/2025)

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

• Inflation in February showed signs of cooling, with a 0.216% monthly increase, lower than the 0.467% recorded in January and below the expected 0.28%. This brought the year-over-year rate to 2.81%, also below the 2.9% forecast. The housing component (+0.29%) remains a key factor, accounting for nearly half of the monthly CPI increase. However, estimates from WisdomTree suggest that real-time inflation in the housing sector is only 1.5%, compared to the 4.2% reported by the BLS, due to a roughly 12-month lag in this metric. This reinforces expectations that housing inflation will continue to moderate in the coming months. Powell has ample room to adopt a dovish tone next week, potentially triggering a positive market reaction. Recent data supports the narrative of inflation moderation, with the Owner’s Equivalent Rent (OER) showing a clear slowdown and downward trend, suggesting that the shelter component (which accounts for 35% of the CPI) could start delivering good news in the coming months.

  

   

  These figures were offset by a 4.0% drop in airfares and a 1.0% decline in gasoline prices. As for food, the index rose 0.2%, driven by a 0.4% increase in food away from home. One notable detail is the trend in egg prices, which, despite slowing to a monthly inflation rate of 10.4%, remain 58.8% higher than a year ago.

  Overall, disinflation in services is continuing after last month’s rebound, while goods, which had previously been dragging inflation down (deflation), are now starting to contribute slightly to overall price levels.

• The perception is growing that political disruption in Washington is eroding global confidence in U.S. institutions and assets. Broken political alliances and economic wars with major trading partners are generating multiple effects, including increased business uncertainty about what will happen next. However, one of the most notable is the growing concern among investors that the U.S. could lose part of its exorbitant privilege.

  This term, coined in the 1960s by then-French Finance Minister Valéry Giscard d’Estaing, essentially refers to the benefits the U.S. derives from the enormous global demand for its assets as a safe haven. This privilege is supported by the widespread use of the dollar internationally, the rule of law, and the strength of U.S. institutions, as well as the projection of its soft power (and let’s not be deceived—its hard power as well).

  The list of factors is longer, but the central idea is clear. The size, depth, and transparency of U.S. markets, combined with the reliability and openness of its governance, have provided the U.S. with a disproportionate share of global capital for decades, along with cheaper financing associated with that trust. If this privilege and standing are now eroded, the impact on capital flows could be significant, leading to a multiple contraction in U.S. markets and an appreciation of emerging markets (among which Europe, rightfully, now finds itself).

  For now, the start of Trump’s second term couldn’t be more different from the first. Time will tell whether this is just a temporary setback as part of a broader long-term strategy. Trump 2.0.

  

   

• TSMC has proposed to major U.S. chip designers such as Nvidia, AMD, and Broadcom the possibility of taking stakes in a joint venture that would operate Intel’s factories. Under this proposal, TSMC would manage Intel’s foundry business without holding more than 50% ownership. The negotiations arise in a context where Donald Trump’s administration has requested TSMC’s support to revitalize Intel (implicitly understood as a trade-off for U.S. backing of Taiwan), an iconic American industrial firm in crisis. The company reported net losses of $18.8 billion in 2024, marking its first year in the red since 1986, with its foundry assets valued at $108 billion.

  The Trump administration, aiming to boost advanced manufacturing in the U.S., would not, however, allow Intel’s foundry division to be entirely foreign-owned. Meanwhile, in March, TSMC announced a $100 billion investment in the U.S. to build five new fabs over the coming years, a strategic move reinforcing its presence in the country. While multiple companies have expressed interest in acquiring parts of Intel, the company has rejected discussions about selling its chip design division separately from its foundry business.

  One of the biggest challenges for this potential alliance is the technological incompatibility between Intel and TSMC. Their manufacturing processes, chemical compositions, and production tools differ significantly, making operational integration difficult. Additionally, Intel has maintained that its advanced manufacturing technology (18A) is superior to TSMC’s 2-nanometer process, which has been a point of contention in negotiations. TSMC, for its part, seeks to ensure that investors in the joint venture are also customers of Intel’s advanced manufacturing, aligning strategic interests.

• Mark Carney has been elected leader of Canada’s Liberal Party and will take office as Prime Minister at a critical moment for the country. His victory, with 86% of the votes in the party’s internal race, marks a leadership shift following Justin Trudeau’s departure after more than nine years in office and a sharp decline in popularity.

  

   

  Carney, a former governor of both the Bank of Canada and the Bank of England, enters politics with no prior electoral experience but a strong reputation as a high-level technocrat. His most immediate challenge will be addressing the escalating trade war with the U.S., where Donald Trump has imposed severe tariffs on Canada, threatening to push the economy into a deep recession. In response, the Canadian government has retaliated with C$30 billion in tariffs on U.S. goods. In his first speech as leader, Carney directly addressed the conflict with Washington:

  “There is someone trying to weaken our economy. We cannot let them succeed.”
  — Mark Carney

  The political timing is crucial. In early 2025, the Liberals were trailing the Conservatives by 20 points, but tensions with Trump have triggered a rally-around-the-flag effect, boosting support for the party during this national crisis. Now, polls show a statistical tie between the Liberals and the Conservatives, led by Pierre Poilievre. Carney is expected to call early elections in the coming weeks to capitalize on his momentum and public outrage against Trump. Although he does not currently hold a parliamentary seat, tradition dictates that he should secure one as soon as possible.

  The Liberals’ strategy is clear: draw comparisons between Poilievre and Trump, a tactic they have already begun using in their campaigns. Poilievre, for his part, has wasted no time in launching direct attacks against Carney.

• The oil market continues to follow the trajectory we expected, with a supply-demand balance showing signs of tightening in the first quarter. However, market consensus seems willing to ignore this reality until a significant disruption occurs. In January, global observable oil inventories declined by 40.5 million barrels, with a 26.1 million barrel reduction in refined products. While crude inventories in non-OECD countries fell by 45.3 million barrels—mainly driven by a drop in China’s imports—total OECD stocks increased by 11.2 million barrels. Additionally, oil in transit decreased by 6.7 million barrels.

  Despite this fact, reported by the EIA itself, the agency still expects global inventories to rise by nearly 1 million barrels per day in the first quarter. Part of this discrepancy stems from “unaccounted balances,” which in January reached a surprising +2.33 million barrels per day, highlighting the gap between implicit and reported balances.

  This kind of disconnect with market consensus is nothing new and is not limited to demand. By late 2023, anyone following the crude market could anticipate a slowdown in U.S. oil production for 2024, even as most of the market projected another year of strong growth. Ultimately, the data confirmed the slowest U.S. oil production growth since the start of the Permian boom in 2016.

  

   

  In its latest report, the EIA estimated February oil demand at 105.17Mb/d and supply at 103.92Mb/d, implying a deficit of 1.25Mb/d!

  Find the trend whose premise is false, and bet against it.
  — George Soros

  The explanation for weak prices lies in the following chart, which illustrates how financial positioning remains heavily skewed to the downside at levels not seen in the last 14 years. These momentum-driven strategies thrive on sentiment until they stop working—and when they do, we can expect an equally violent reversal to the upside.