Is Trump Secretly Pushing For A Deal When Iran's President Arrives In NY
By Benjamin Picton, Senior Market Strategist at Rabobank
All The News That Is Not Fit To Price
Political and geopolitical developments again stole the headlines over the weekend, with attendant market implications. Active European gasoil futures are lower this morning despite news that Ukraine had launched a “massive” drone attack against Moscow that had damaged a major refinery. Brent crude oil prices are also lower despite news that Donald Trump had cut short a trip to Camp David to return to Washington, reports that Iran had activated its highest military readiness alert amid claims that the US is preparing to resume attacks, Houthi attacks on the Saudi capital Riyadh, and Pentagon Pizza Report activity suggestive of something afoot. Asian stocks are broadly higher this morning and US equity index futures are pointing towards a positive open.
President Trump announced late last week that Denmark and the United States had struck a deal to provide the US with military access to the Greenland in perpetuity. Trump said that the agreement bars non-NATO countries from establishing bases and gives the US the right to refuse third party nations from holding economic interests in the territory. Aside from its strategic value adjacent to the Arctic and lying between the United States and hypothetical ballistic missile paths from Russia, various media outlets have also pointed towards Greenland’s deposits of rare earth minerals as an important factor in the US’s interest in the territory. Trump said that the US would commence the work of beefing up its military presence in Greenland immediately.
That was far from being the only major development on transatlantic security over the weekend. Social media was teeming with speculation over Emmanuel Macron’s decision to call French party leaders and presidential hopefuls to a closed-door briefing at the Elysee regarding the worsening international security situation. Attendees were reportedly briefed by senior intelligence officials on intensifying threats from Russian hybrid warfare, including cyberattacks, sabotage, drone strikes, assassinations and grey-zone tactics. Macron warned that the threat has expanded from state and military targets and could now result in civilian casualties.
Concurrently, Polish PM Donald Tusk warned citizens that there are difficult times ahead and said that Russia is planning further drone and missile attacks on NATO territory. Meanwhile, Britain’s BBC asks the question “War may be coming. Are we psychologically ready?” Perhaps a more interesting question is at what point are grey zone attacks sufficient for NATO’s article 5 to be invoked? And what would actually happen if it was?
The answer to that question suddenly seems less clear after Slovak Prime Minister Robert Fico said that he would not allow Slovakia to be pulled into a military conflict with Russia because of NATO’s collective defence clause. Such an ‘all the benefits, none of the costs’ approach does nothing to dispel American criticisms of a mentality of free-riding on the continent and again highlights the lack of political cohesion at the supranational level, even as Canada under Mark Carney seeks deeper trade and security ties with a European bloc that still hasn’t seen fit to fully ratify the CETA trade agreement.
Elsewhere in Europe the far-right AfD followed up its recent win in Saxony-Anhalt by recording a strong result in the Mecklenburg-Western Pomerania elections to finish with the highest vote share (38.2%), just ahead of the left-wing SPD (35.5%), while Chancellor Friedrich Merz’s CDU slumped to just 4.9% of the vote – its worst result in any state election since the formation of the Federal Republic of Germany. That figure is low enough to see the CDU ejected from the state parliament altogether. Merz called the result a “disaster”.
While the far right was making ground, so was the far left. The Die Linke party won 25.7% of the vote to finish first in the Berlin elections. Nevertheless, a deal between other parties may still see it barred from capturing the Berlin mayoralty, which would likely stymie efforts to enact its program of nationalizing privately owned property in a bid to lower rents.
Despite the poor electoral results, Chancellor Merz is saying that he will stay on in an effort to deliver on a program of economic and security reforms that he said could be “the antidote to authoritarianism”.
US ten-year treasury yields closed 6.5bps higher on Friday while two-year yields rose by almost 8bps to see a modest bear flattening of the curve. That’s as Scott Bessent met with Chinese Vice Premier Hi Lifeng on Sunday ahead of a meeting between Presidents Trump and Xi in Washington later this week. Discussions reportedly centerd around trade, artificial intelligence and rare earths.
Further discussions will be held later today to lay the groundwork for Trump-Xi summit which will now occur in the context of China having been cut off from cheap oil supplies from Venezuela and Iran, having energy supplies from Russia pressured by Ukrainian strikes, chased out of the Panama Canal, seeing its Arctic ambitions challenged by an increased US presence in Greenland, and watching sympathetic governments in South America fall like dominoes to US-aligned right wing challengers. On the latter, Polymarket now has Flavio Bolsonaro ahead of Lula by 62-41 for the October 5th Presidential election.
News over the weekend that Saudi Arabia had quit China’s mBridge digital currency program that US critics have said subverts the role of the US dollar in the global monetary system coincided with news that the US State Department had approved the sale of 48 F-35 fighter jets to the Kingdom. Saudi leaving the Chinese payments initiative may be just as strong a signal as the UAE’s decision to leave OPEC and OPEC+ about the US’ determination to play a much more aggressive brand of the Great Game to secure its own enduring interests.
With Iranian President Pezeshkian set to arrive in New York for the UN General Assembly this week – and Donald Trump expressing willingness to meet with him – rumors of Gulf states preparing to sign on to the Abraham Accords continue to swirl.
Could we see a deal done? Or could all the news that the market has not seen fit to price suddenly show up in the price action?