Morning from Copenhagen.

It’s clear from the overnight headlines that dynamics are shifting within the Trump team. Elon is pulling the plug on DOGE—likely because the administration’s policies are starting to hurt his core businesses, which are global in nature. Meanwhile, Bessent is actively orchestrating a U-turn on tariffs, and Trump has revoked his threats to remove Powell, saying he will be “very nice” to China.

From the outside, this looks like a response to growing dissatisfaction within the administration—primarily from Bessent and Lutnick—and clear warning signs from US businesses. Trump has reportedly met with Walmart, Home Depot, Target, and others, all of whom are clearly unhappy with the current policy line. The feedback he’s received from business America—on order books, hiring plans, and economic conditions—has likely been so bad that he felt forced to act. Domestic counterparts, both politically and economically, are now effectively pressing the brakes for him.

Alternatively, this could simply be Bessent pushing for the removal of tariffs to try and achieve the best of both worlds: a weaker USD, easier financial conditions, and a Fed more likely to ease due to a business cycle downturn.

We’ve had a string of dismal regional PMI prints in the US lately, but markets have so far been reluctant to price this into bond yields and equities. It’s likely the same old story: markets want to see weakness in the headline numbers (ISM, NFP, etc.) before they believe it.

That said, we remain firm in our view that we’re on the verge of a 2020-like shock in the ISMs—especially as US firms are exposed to all the tariffs imposed by Trump. This contrasts with European companies, which are primarily exposed to tariffs on Europe. That’s also why European PMIs look relatively upbeat for now, as the tone toward Europe has been much more benign.

Chart 1: ISM Services Down the Drain as Well?