Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

World stocks leaped on Thursday after U.S. President Donald Trump agreed a framework of a deal on Greenland and withdrew his threat to slap new tariffs on several European nations, while investors also cheered upbeat U.S. economic data.

More on that below. In my column today I look at the 'Sell America' narrative that is back with a vengeance, and pose the question: will President Trump's bellicose policy agenda prompt the world to reduce its $27 trillion 'long USA' position? 

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Return of the 'TACO' trade

U.S. President Donald Trump's climb-down on Greenland and renewed tariffs on Europe probably had several explanations, but one of them is surely the adverse U.S. market reaction earlier this week that saw Wall Street, Treasuries and the dollar all fall sharply together.

With mid-term elections looming in November, the affordability crisis a priority. Mortgage rates are falling but they've not been below 6% since 2022, and more than half of current mortgages are higher than 6% - the last thing Trump wants is a spike in long-term yields and a stock market slump. It seems the 'Trump always chickens out' trade is alive and well.

* The U.S. growth juggernaut

For all the teeth-gnashing over trade wars, inflation, and global geopolitical fractures, the U.S. economy seems pretty robust. Third quarter GDP was revised up to a 4.4% annualized rate on Thursday, the fastest pace in two years, and sharply up from 3.8% in the second quarter.

Fourth quarter growth looks even stronger, with the Atlanta Fed's GDPNow model currently tracking 5.4%. Figures like these bolster the view that growth and inflation risks are skewed to the upside. And if that's the case, why is the Fed cutting rates?

* Bank of Japan meeting

The BOJ announces its latest policy decision on Friday. The backdrop could not be more challenging - the yen is languishing at historic lows, the bond market is tanking, long-dated yields have rocketed, and the government wants to accelerate spending.

The problem is, offsetting all that with aggressive policy tightening risks torpedoing the bond market. Markets are pricing in a 25 basis point hike by July and only 20 bps after that - clearly not enough to support the yen. It's a delicate balancing act.

Talk of the "Sell America" trade has returned, and even if it quiets after news of U.S. President Donald Trump's potential Greenland deal, it's fair to assume it's not going away.

We've been here before. Last year, "de-dollarization" was the buzzword, as Trump's tariff-based trade war sparked fears that investors would slash their exposure to U.S. assets.

That didn't happen. Official U.S. Treasury figures show that foreigners bought a net $1.27 trillion of U.S. securities in the first 11 months of last year, spearheaded by a flood of money into Wall Street from private-sector investors gripped by the artificial intelligence frenzy.

November feels like ages ago, though. The blizzard of controversial policy steps from Trump since then – which have effectively upended the U.S.-European alliance and rules-based world order of the last 80 years – has revived talk of shorting Uncle Sam.