Morning from Copenhagen.

There’s been a major overnight development in geopolitics, with the U.S. and China officially announcing a meeting later this week focused on trade. It’s now quite clear that every major announcement, meeting, or negotiation increasingly involves Bessent—not Trump.

Meanwhile, tensions have sharply escalated in the Kashmir region. Indian equities have recovered decently this morning, while Pakistani markets are significantly down. India has conducted strikes in Pakistan but has notably avoided targeting official Pakistani military installations. A Pakistani response is likely, and further exchanges of attacks can be expected in the coming days. However, backchannel diplomacy is already underway via Russia, and there’s a realistic chance the conflict will be contained to the border region—particularly if China steps in. Interestingly, Indian rhetoric is currently focused on downplaying the scale of the operation rather than asserting military dominance.

Our assessment is that the conflict will likely remain geographically limited. India is in a relatively strong position: Xi and China remain silent, and Pakistan’s only significant backer is China. Meanwhile, U.S.-India relations are improving, with a potential trade deal on the horizon. Given Washington’s need for Indian alignment in the U.S.-China negotiations, it’s unlikely the U.S. will intervene diplomatically at this stage.

We’re seeing small improvements on the trade front too, with container volumes and the number of departed ships taking another leap higher—a sign that things are moving in the right direction. Although such deals typically take months to finalize, both U.S. and Chinese companies appear confident that an agreement will come through before goods hit U.S. shores (and hence be taxed).

This is all playing directly into Bessent’s playbook:

1. Get the USD down, especially against major trading partners. This has mostly succeeded in Asia so far (and CNH/JPY will likely follow), while the USD has already dropped meaningfully vs G7 currencies.

2. Get oil prices down by locking down trade—thereby hitting commodity markets.

3. Open the economy with low oil prices and a weaker USD to shrink the trade deficit.

While the execution hasn’t been perfect, Bessent taking the reins has clearly accelerated the policy shifts. We more or less only need yields to move lower for him to complete his personal bingo card.

Chart 1a: Container Freight Between China and the U.S. Is Rebounding