Ukraine – A new peace plan
Last week, a new 28-point peace proposal for Ukraine emerged, floated by US and Russian envoys. This plan would require Ukraine to cede significant territories currently occupied by Russia, limit the size of its military, and eventually see sanctions on Moscow lifted. Crucially, Ukraine would be expected to abandon its NATO ambitions. Should this peace plan gain traction, it could send a positive signal to Eastern European markets, as tensions ease, offering a potential tailwind for regional assets.
US – Political heat pushes tariffs lower
With the midterm elections on the horizon, President Trump’s focus has shifted to the rising cost of living, a major concern as his popularity drops. Tariffs, which have been at historically high levels, are beginning to soften. Last week, Brazil’s tariffs on food were lifted, and more exemptions are expected in the near future. Additionally, with the Supreme Court ruling anticipated soon, and likely not in favour of the administration, further relaxation of trade policies could be on the table. IEEPA tariffs, which account for two-thirds of projected tariff revenues, could be scrapped, pushing the budget deficit higher by 0.8%. Meanwhile, Trump has expressed interest in reintroducing agricultural tariffs, but these represent a small fraction of total imports, and adding these tariffs is more symbolic than impactful. The entire tariff structure is fundamental to fiscal policy and easing these tariffs would come at a considerable cost that may be difficult to bear.
US – New data for a split FOMC
Last week, September’s labour market data showed a surprise upside in non-farm payrolls at 119,000, while the unemployment rate edged higher to 4.44%, above expectations. The market initially reacted by pricing in lower rates, however the Fed’s recent minutes revealed a deep split within the FOMC, with a growing cautious approach to inflation. With the October data set to be released after the Fed’s December meeting, the outlook for December remains uncertain, and the market is currently pricing in only a 30% probability of a rate cut.
Algebris Investments’ Global Credit Team
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