A wave of growth-negative news has rolled in since the weekend. Trump is reportedly furious with Putin and is now considering secondary tariffs on Russian oil—an escalation that would weigh on global growth. Meanwhile, there’s no clear path to peace in Ukraine, with Russia holding the cards and continuing to gain ground, adding further geopolitical drag. 

On top of that, a blanket approach to reciprocal tariffs across all countries is being floated, a move that would dent global trade and activity. Markets have learned the drill by now: rising tariffs may cause a one-off inflation spike, but the more lasting effect is slower growth—hence, yields 5y and out tend to fall. Adding insult to injury, Japan, China, and South Korea are now negotiating a free-trade agreement—an eye-roll moment as the U.S. isolates itself. Hard to recall a single man torching this many alliances, this quickly.

But, having said that, we’re likely to see the economist consensus challenged right, left, and centre post-Liberation Day. Right now, the consensus has shifted toward US stagflation, while an investment-led recovery is expected in Europe and China.

It’s simply not a likely scenario that China and Europe can continue to outperform if the US doesn’t regain its footing. And with few signs of material consumer inflation in the live US data, we may get some disinflationary news to cheer for in USD-denominated assets in the short term.

Chart of the week: Inflation perception versus reality