The recent sting of tariffs has received some reprieve by the US delaying implementation on the auto industries of Canada and Mexico by 30 days. It is a cynical move and only undertaken as the largest casualty might just be the US car giants that ship materials and parts several times across each border before a unit is finished. Still, it inspired a phone call between Washington and Ottawa in which an anonymous Reuters source reported the Canadian Prime Minister, Justin Trudeau, would be willing to withdraw some of the retaliatory measures if the US drops portions of tariffs against its northerly neighbour, the details of which remain unknown. The US President took to ‘Truth Social’, complained that Canada’s action on border controls were not good enough but conceded the phone call ended in “friendly manner”. The delayed auto tariffs, and according to Bloomberg, some agricultural exemptions, and the dialogue shared inspired investor risk, meaning there is hardly an asset subjected to recent fright and flight that has not benefited in a bounce, apart from the US Dollar hounded by the Euro due to potential German stimulus, touched on below.

This includes oil prices recovering from 6-month lows after an overreaction to the US EIA Inventory Report. Gasoline stocks fell by 1.433mb, Distillate stocks by 1.318mb and total Commercial stocks by 4.594mb which is 17,584mb lower than last year and 19,492mb below the 5-year average. However, the focus was on Crude, and despite being 14,755mb and 18,305mb respectively below last year and the 5-year average, the 3.614mb build on the week tipped the balance of emotion. With a tariff backdrop, OPEC+ bringing more oil to the market in April and the US investigating the possibility of lifting some of Russia’s sanctions, M1 Brent penetrated the psychological $70/barrel number accelerated to a low of 68.33 and thus negating the rally seen between September 2024 and January 2025. Eventually the car-tariff relief helped a late day bounce, but Brent still finished -$1.74/barrel (-2.45%) on the day. After falling nearly $4/barrel this week, the European marker’s 14-day Relative Strength Index is registering 31.00, with a 30.00 reading being oversold. We regard this technical indicator with much reverence and although there are times when a state of oversold or overbought may exist for a few days, invariably the market will turn. We hide a behind a caveat that times are a-changing, and who knows what will come from what is aptly described by Melanie Joly, the Canadian Foreign Minister, as the White House “psychodrama”, and the US President’s intention seems to be for a lower oil price. But, it should be noted that being short Brent at $70 has not returned monies since June 2021.

Germany, front and centre in Europe once again

Socratic history records Plato writing, ‘our need will be the creator’, which in time has evolved into the English proverb, ‘necessity is the mother of invention’. The bizarre scenes witnessed in the Oval Office on Friday have spurred a sleepy Germany into rethinking its own fiscal rules and indeed, its geopolitical place in the world. It is fortuitous, if one believes in such things, that a new Chancellor-elect happens upon a recent German basket case and is prepared to offer CPR inspired by the prospect of war. Hyperbolic and alarming as that may seem, it is nonetheless inspired by a Donald Trump whose ambivalence to Ukraine and indeed, Europe in general has the potential to leave a security hole that France and the UK alone cannot fill. Incidentally, there is now speculation in some press quarters on the role of the US in NATO. The Supreme Allied Commander Europe has always been an American general since the forming of the alliance after the Second World War. However, it appears that the US President is of a mind that such a command ought to be taken up by either France or the UK.

The German ‘debt brake’ is a Basic Law binding the Federal Government and the 16 states (Länder) to balance their books. It is complicated and there are caveats, one in which the government may spend 0.35% of GDP per annum, but spending in the main can only equal revenue and hence the debt brake reference and why German budgets have failed when increased debt proposals have been successfully challenged in court. The new German Chancellor-to-be, Friedrich Merz, along with his probable SDP coalition partner have vowed to undertake reform of such stringent rules and increase government spending to 1.4% of GDP by the end of 2025. In addition, and importantly for European military vulnerability, Merz is seeking a constitutional exemption from fiscal handcuffs when it comes to defence and security. The proposal will actually be brought to vote in the current parliament for fear of a much harder carry in the new one with the AfD and Left-leaning contingent running a blocking vote. The Bundeswehr (combined German forces) has count of 183k active personnel engaged in national defence and NATO duties. Whether or not they could be part of the UK and France’s promise of ‘boots on the ground’ in Ukraine is extremely sensitive and debatable, but a defenceless Ukraine is even more so. In the run up to the recent German election, Merz was considering a Eur200 billion fund aimed at bolstering military capabilities, the recent urgency after the US/Ukraine, US/NATO/Europe wrangles give rise to speculative predictions of a much higher threshold.
At present the markets believe the vote may carry and the spending will rouse a catatonic Germany. The DAX rallied nearly 4% yesterday and having already started the year well, printed all-time highs once again. In a pan-European context, it has enabled the Euro to achieve 1.08 against a US Dollar pairing which has not been seen since April last year despite the almost guaranteed cutting of interest rates by the ECB later today. It is not just the prospect of military spending prompting enthusiasm. A Germany free from legislative financial restrictions with a looser attitude toward fiscal promotion can only be good for the once solid and cyclical rhythmic heartbeat of Europe’s economy. A manufacturing and industrial sector shifting weight from the back to front foot and a greater interest in the military wherewithal of its neighbours is a massive boost for not just Germany, but for Europeans in every country be they in or out of the union. The rattling of cages by Donald Trump has conspired with a political change in Germany that might just see Europeans being recharged in confidence. One can only hope so given the misery of non-compliance consequence spewing from the White House. Maybe, the mercurial US President is right, maybe it is time for Europe to take charge of its own affairs.

Overnight Pricing