What you need to know

Yesterday, we noted that the U.S. administration still retained some ability to manipulate key economic indicators, despite mounting volatility. That grip appears to have been lost. The market fallout now poses urgent questions about whether control can be reasserted—particularly in the bond markets. The consequences will be severe, both in the short and long term, for global economic stability.

Markets abhor uncertainty. And the administration’s erratic approach to tariff policy—marked by repeated reversals—has become a textbook case in how to undermine investor confidence.

The current tariff framework is as follows:

The U.S. dollar is falling sharply against global currencies. Brent crude has dropped to $58.5 per barrel, the lowest since February 2021.

Bond yields have surged:

Yields may surpass the 5% threshold by today or Monday if current trends persist.

Meanwhile, Chinese seven-year government bonds are being auctioned at a yield of just 1.562%, a stark reflection of investor preference for Chinese over American debt. This morning, China also raised its tariff levels on U.S. goods to 125%.

This diverges sharply from the logic set out in a policy paper by Stephen Miran late last year—one that appears to underpin the administration’s approach. The paper, often dubbed the Mar-a-Lago Accord (see our explainer here), outlined a plan to crash the economy to force down the dollar, reduce interest rates, and shrink the national debt. So far, only the dollar has declined. Foreign institutions, particularly in China and Japan, are offloading U.S. bonds, forcing the Treasury to offer higher yields to attract buyers—driving up debt servicing costs instead of lowering them.

Treasury Secretary Scott Bessent has made reducing ten-year yields a priority. Yet it is the administration’s own policy instability that is fuelling market turmoil. This is particularly notable given Bessent’s colleague, incoming SEC Chair Howard Lutnick, spent decades navigating bond markets at Cantor Fitzgerald.

The 30-year mortgage rate has now risen to 7.37%, and is likely to go to 8% next week unless the administration shows some control over runaway bond prices.

Halfway through fiscal year 2025, the federal budget deficit has ballooned by $1.3 trillion, putting it on track to reach $2.6 trillion by year-end—equivalent to roughly 9% of GDP.

S&P 500 futures dropped nearly 100 points overnight. In cash trading, the index fell by 6%, just one percentage point shy of triggering a circuit breaker that would have suspended trading altogether. Japanese stocks, which had rallied the day prior, fell more than 4% in today’s session. Gold climbed to a record $3,210 per ounce. The dollar continues to weaken, while the euro and Swiss franc are gaining ground.

Supreme Court case may test presidential power over the Fed

President Donald Trump has asked the U.S. Supreme Court for permission to dismiss top officials at two independent agencies, filing an emergency petition that could significantly expand White House control over federal regulators. The case revisits a 1935 Supreme Court precedent that allowed Congress to insulate senior officials from dismissal, enabling the proliferation of independent agencies across the federal government.

The legal battle could ultimately test whether Trump has the authority to dismiss Federal Reserve Chair Jerome Powell. While he has not directly sought Powell’s removal, Trump is pushing for the Fed to cut interest rates, which would reduce debt servicing costs—now nearing $1 trillion per quarter—and potentially trigger a domestic industrial revival.

Tariffs on China rise to 145%; financial decoupling accelerates

The divorce proceedings between the U.S. and China, previously the two major driving forces of the global economy, continue. The White House confirmed that tariffs on Chinese goods have been raised to 145%. The administration is also moving toward delisting Chinese firms from U.S. stock exchanges. Incoming SEC Chair Paul Atkins is expected to pursue the issue, bolstered by growing support from Republican lawmakers. Current law allows delisting of foreign companies that fail to meet U.S. auditing standards or have opaque ties to foreign governments.

China’s President is set to visit Vietnam, Malaysia, and Cambodia next week, highlighting Beijing’s growing influence in Southeast Asia. Meanwhile, European Commission President Ursula von der Leyen announced that the EU and the United Arab Emirates will begin negotiations on a free-trade agreement. As the U.S. turns away from multilateral trade, other nations are filling the void—raising questions about the future of the post-war global trade order that Washington itself created.

Democrats to investigate Trump over market interference claims

In a dramatic turn, Democratic House leader Hakeem Jeffries announced that his caucus will launch a formal investigation into Trump’s alleged manipulation of financial markets. Separately, Senator Chris Murphy accused the President of using cryptocurrency schemes to reward foreign oligarchs with ties to his private business interests.

It’s now the U.S. vs China, everyone else needs to pick a side

Around 30 defense ministers met in Brussels on Thursday to discuss the formation of a multinational force to deploy to Ukraine in the event of a ceasefire. The proposed “reassurance force” would be tasked with monitoring compliance and protecting Ukrainian sovereignty. The initiative is being led by France and the United Kingdom, which are attempting to assemble a “coalition of the willing.” British Defense Secretary John Healy said the force would aim to deter further Russian aggression.

Roughly 200 military planners—mainly from France and the UK—have been involved in preliminary discussions, along with officials from several other countries. Ukrainian officials warned that Russia may be preparing for a renewed offensive in the coming weeks to gain leverage in ceasefire talks, which are being brokered by the United States. However, the U.S. has not formally committed to supporting the proposed force. Officials from the Netherlands, Sweden, and Finland stressed the importance of U.S. involvement in any credible security arrangement for Ukraine.

Kremlin denies Chinese involvement in Ukraine conflict

The Kremlin denied on Thursday that China is becoming involved in the war in Ukraine, following Ukrainian President Volodymyr Zelensky’s claim that his forces had captured two Chinese nationals fighting alongside Russian troops. Zelensky alleged that at least 155 Chinese fighters are serving with the Russian military.

Kremlin spokesperson Dmitry Peskov rejected the claim, stating that “China is our strategic partner, friend and comrade… Zelensky is wrong.” He added that China maintains a “balanced position” on the conflict. Russia and Ukraine both permit foreign volunteers to fight within their ranks.

Zelensky claimed that the Chinese nationals had been recruited via social media and had undergone medical screening and two months of training in Moscow. South Korean intelligence estimates that some 11,000 North Korean soldiers are fighting alongside Russia, though only on Russian territory. There is, to date, no evidence that Chinese nationals are fighting as part of an officially sanctioned contingent.

Australian prime minister defends AUKUS submarine deal

Australian Prime Minister Anthony Albanese said on Friday that Canberra’s purchase of nuclear-powered submarines is essential for national deterrence. His comments come amid rising concerns that the trilateral AUKUS pact with the United States and the United Kingdom may be faltering. U.S. officials have raised doubts about Washington’s ability to meet its commitments under the agreement, given limitations in submarine production and operational capacity.

Under the deal, the United States was expected to sell three nuclear-powered submarines to Australia by 2032. But recent comments from Washington suggest that the U.S. Navy may lack the capacity to supply both its own fleet and Australia’s.

Speaking at a campaign event in Darwin, Albanese said he remained “confident about AUKUS,” adding that the submarines were necessary to enhance Australia’s stealth capabilities and long-term security. He dismissed speculation about potential conflict with China as “irresponsible,” responding to questions about the U.S. needing the submarines for its own strategic purposes. Opposition leader Peter Dutton, however, expressed doubts about the government’s ability to manage the AUKUS agreement effectively. Canberra is facing a deadline this year to provide the U.S. with $2 billion to support upgrades at American shipyards.

Birth pangs in the birthplace of civilization

Iran warned on Thursday that it could suspend cooperation with the International Atomic Energy Agency (IAEA) if external threats persist. The statement was made by a senior adviser to Iran’s Supreme Leader Ayatollah Ali Khamenei, suggesting the warning carries significant weight. The remarks come as the United States and Iran prepare to resume talks over Tehran’s nuclear program. U.S. President Donald Trump has said the talks will be direct; Iran maintains they will be indirect.

The IAEA conducts inspections at Iranian nuclear facilities and reports on uranium enrichment levels. In February, the agency confirmed that Iran had enriched uranium to 60% purity—close to the 90% threshold needed for a nuclear weapon. Tehran insists its program is for civilian purposes only.

Türkiye holds deconfliction talks with Israel to avoid further escalation in Syria

Türkiye and Israel held talks on Wednesday in Azerbaijan aimed at preventing further escalation in Syria, according to a statement from the office of Israeli Prime Minister Benjamin Netanyahu. The Israeli side warned that the establishment of Turkish military bases in the Palmyra region would constitute a “red line” and a breach of trust. The discussions are intended to create a deconfliction mechanism to avoid unintended clashes in Syrian territory. Azerbaijani President Ilham Aliyev, whose country maintains good relations with both sides, confirmed that Baku is mediating between Türkiye and Israel.

Turkish Foreign Minister Hakan Fidan also confirmed that the talks were underway. Last week he stated that Ankara “does not want to see any confrontation with Israel in Syria.” Since the Turkish-allied Hayat Tahrir al-Sham group captured Damascus in December and assumed formal authority, Israel has conducted a series of airstrikes on military installations and other strategic sites in Syria. It has also moved forces into a United Nations-mandated buffer zone in southwestern Syria, adjacent to the Golan Heights, which it occupies.