More Two-Screen Analysis… For Now

By Michael Every of Rabobank

‘Two-screen analysis’ continues today… for now.

On one, it’s the Bank of Canada and Fed rate decisions. For the BOC, we expect a 25bps rate cut to 2.25% to be the end of its cutting cycle – that.

However, as geopolitical/geoeconomic developments play out on the second screen, is the Fed headline that matters more that Trump is floating Treasury Secretary Bessent as Chair – and not at the expense of his current role(?) Yet every Fed candidate is now Trumpian. That doesn’t just mean lower rates. Floating Bessent is to embrace the Fed playing a role in a US ‘grand macro strategy’. You don’t have to join many dots to see what the plot there is: Bessent is already suggesting the BOJ needs room to act (i.e., hike), pushing JPY higher and JGB yields the same.

In tandem, Trump and PM Takaichi pledged a ‘new golden age’ for their alliance as the two countries agreed a listed the deals which are part of the $550bn FDI pledged by Tokyo, from energy and AI to critical minerals. Even if aspirational, the direction is clear. So is the fact this is driven by statecraft, not markets. Soon, central banks may play a direct role in it.

Equally, the Fed decision is just ahead of the Trump-Xi meeting in South Korea – and the latter surely matters more(?) The Wall Street Journal claims Trump will consider lowering the 20% fentanyl tariff on China by half, which Trump just confirmed. Of course, China promised action on that front in 2017-18, May 2019, November 2023, January and August 2024, and June 2025: logically, one side is raising the issue for no reason or the other can’t or won’t act on it for another. US rumours are also that it will get a very good deal, but the South China Morning Post warns Trump’s love of unpredictability could hinder things, noting, “the US president’s erratic style of diplomacy and lack of strategy or focus may leave Beijing baffled.”

And central bankers. The flurry of tariff shifts and investment deals this week alone will keep their static, econometric models permanently grinding out ‘what-ifs’ presented as fact; and the ‘what if?’ of a Fed that doesn’t think in such two-dimensional terms is now more of a ‘what then?’

Asian central banks have certainly been pulled all over the place. The BOJ is being leaned on to hike; Bank Indonesia held after a series of cuts, worried about IDR; and the Bank of Korea also held, worried about high household debt. Then Australian Q3 CPI today came in far hotter than expected at 1.3% q-o-q headline (vs 1.1% consensus) and 3.2% y-o-y (vs 3.0%), 1.0% q-o-q trimmed mean (vs. 0.8%), and 1.0% q-o-q weighted median (vs. 0.9%), while the September print was 3.5% y-o-y (vs. 3.1%). Much of this was services-led, and much of that was directly or indirectly property-led, which has boomed again on recent RBA rate cuts and those arriving in Australia exceeding the number of houses being built (again). So, more RBA cuts to come? Don’t rule out a pause rather than a halt in easing, says our Australia-New Zealand macro strategist Ben Picton. Which is what an independent inflation-targeting central bank does, according to markets.

Yet the action in said markets is really about grand macro strategy: Nvidia is linking up with Palantir as Microsoft restructures OpenAI so it’s openly making money as part of a US private-sector Manhattan Project, which the government is paving the way for with an $80bn deal for new nuclear power plants (partly funded by Japan) to ensure cheap electricity for AI.  

That’s as some major US firms start mass firings of workers as that emerging technology allows them to do so very profitably. To say you need to be reading the relevant parts of Marx, Keynes, Kalecki, and Leontief on a second screen as this all unfolds is an understatement. But almost nobody will.

There’s also a lot going on in the geopolitical/geoeconomic realm in Europe too. We listed a staggeringly ambitious set of reforms and implied economic statecraft actions being proposed yesterday. On top of that, the European Commission is doubling down on its Ukraine loan scheme using Russian frozen assets, despite Belgian pushback, and had effectively stated “If you won’t seize Russia’s cash, open your wallets”, according to Politico. Meanwhile, the Kyiv Independent warns Russian troops outnumber Ukraine’s 8-1 in Pokrovsk as Kupiansk is over-run. In response, ‘

In politics, US Attorney General Bondi is now reviewing Biden presidential pardons signed by autopen, with a Republican-majority Congressional committee having decided they may be “void.” To say that could unleash political, then legal, drama is an understatement.