By Jamal Mecklai, CEO, Mecklai Financial
It looks like Donald Trump’s “craziness’ is already polluting sentiment, not just with the US’ trading partners (and erstwhile friends) but importantly, with increasing numbers of Americans who were looking forward to Great Times — a soaring stock market, lower prices, and more well-paying jobs.
The Dow is down nearly 8% since it peaked at 44,882 on January 30, and worse, it has fallen despite companies reporting strong results—both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages. It had fallen even further before rebounding sharply (possibly as a result of the US Congress approving a bill to continue government borrowing) on Friday from a long-term support line. Nonetheless, it had its worst week since 2023, with the indices declining for four weeks in a row.
Again, while the 10-year yield is down some 20 basis points since Don-Day, the US Federal Reserve is, hardly surprisingly, off balance on inflation, and few analysts are expecting rates to come down in the near term. The consumer price index increased by 0.2% in February, slightly below expectations, but most Americans are not as concerned with inflation as with the absolute level of prices — the chances of them coming down, particularly in view of Trump’s tariff shenanigans and Elon Musk’s equally uncertain cost cuts, are zero.
Further, the on-again, off-again tariffs will not only increase prices but will push growth lower, since supply chains cannot be quickly mended or reconstructed. The likelihood of global (or, indeed, domestic) companies investing in the US are getting bleaker by the day since uncertainty — which seems to be Trump’s trump card — is a death knell for fresh investment. Thus, the prospect of a surge in well-paying jobs is, at this point, close to zero.
And while there are still many people in the US who love Trump — even as his popularity rating has fallen to the lowest of any President at this stage of his term — many of them are feeling the pain, or soon will. The people who dislike Trump, of course, are finally getting over their shock and are up in arms, including some articulate members of the US Congress.
Globally, of course, Trump is seen as a snarling pariah, a creature to keep at as much distance as possible. In addition to retaliatory tariffs (Canada, Mexico, the European Union [EU] and, doubtless, China and other countries), there are movements in several countries to, wherever possible, boycott American products. Brand America — the shining city on the hill — is already sinking.
In other words, American soft power is over. Kaput. The good news is that there are no vacuums in nature and, to give Trump due credit, he has been successful in shake Europe — notably, Germany — out of fiscal inertia.
For too long Europe had thrown caution in terms of strategic risk management to the wind and assumed that the US would always be there for support. Things started changing when Trump was first elected, but since the start of his second term, the EU has been on fire, working quickly, for a change, on, for instance, a €800 billion defence plan; the UK is working with the EU on this and there are plans for joint borrowing (as was done during the Covid-19 pandemic). Critically, Germany has lifted its debt brake, which means its hallowed budget surplus will be allowed to—and will — go into deficit.
Thus, despite the current easing, interest rates in the Eurozone will be going up in the medium term. The market sees this and has already marked the Euro up by more than 4% against the dollar since the start of March; it is more than 6% higher as compared to its lowest level since the start of the year. Both the sterling and the yen have appreciated similarly.
The dollar index (DXY) is down nearly 6% from its 2025 highs, and technicals suggest it can fall a further 6% or so, easily breaking below 100, in short order. I note that since 2002, the DXY has been below 100 over 80% of the time — perhaps, that is its natural level.
In February, the US GDP was more or less equal to that of the EU and the UK combined; if the dollar were to fall 10% from its level in February — and that seems to be clearly on track — it would change several equations.
US exports will get more competitive and imports will get more expensive, pushing the US trade deficit somewhat lower. But this will likely take 12-15 months to show up, if not longer, because of the dislocation of supply chains. In the meantime, the EU and the UK combined would overtake the US as the world’s largest economy, and, in that time, could easily be as much as 10% larger.
In parallel, the continuation of Trump’s alienating policies — the nature of the beast — would drive American soft power lower and lower, reaching a point where Europe (in concert with the Arab world and the Chinese watching inscrutably but with a smile in their hearts) will start calling the shots against Vladimir Putin, Benjamin Netanyahu and, indeed, Trump.
A crisis can be a wonderful opportunity, and Ursula von der Leyden, Sir Keir Starmer, Emmanuel Macron, and Friedrich Merz are already showing a renewed and energised leadership to take advantage of it.