Since the start of the year, political changes have violently impacted bond, equity, and commodity markets. Anything that was talked about in 2024 was reversed in the first 75 days of 2025. American exceptionalism, German recessionary economic outlook, initial expectations of tariffs announced by the new US government – everything has changed. Major political shifts shape financial markets regardless of incoming data.

Trading in this violent environment shaped by a handful of political decisions is certainly one of the most intensive periods in recent history. Economic data is no longer in focus as it was over the past few years due to everyday political shifts and new narratives emerging and lasting for a day. What are the reasons for such a dynamic environment? Elections in two major economic superpowers, Germany and the US, have given us new ruling parties that are willing to completely change everything that the current generation of traders and macroeconomic analysts haven’t seen yet. Tariffs have been significantly reduced after the Second World War and haven’t been changed much since then. Currently, the Trump administration wants to go back in time and try to lower the trade deficit that exploded in the 1970s via massive tariff hikes. Certainly, that is an uncharted territory due to significant globalization and changes in the post-Bretton Woods world. Simultaneously, across the Pacific, Japan is exiting its decades-long politics of negative interest rates and stagnation of growth and wages. A little bit to the west of Japan, China is trying to evade a deflationary spiral and revive its economy via massive fiscal stimulus. European Union is preparing massive rearmament of its member states with Germany abandoning its debt brake which led to massive repricing of European bonds as German bonds are viewed as benchmark for pricing of every other European euro-denominated bond. Furthermore, Trump is trying to negotiate a deal between Ukraine and Russia without Europe and China participating in the deal. It’s very hard to find a period in books since the Second World War that was so volatile on the geopolitical spectrum. Monetary policy simply went out of discussion as inflation fell to low single digits and does not pose a major problem as it did in 2022, 2023, and 2024.

A major political shift occurred in Germany as the new government will significantly increase the deficit and once again show the way for the rest of the EU.  Such intentions to strengthen European independence are a sign of European unity in these dire times of macroeconomic uncertainty. Also, the United Kingdom is participating in promoting European defence as Europeans do not see the US as reliable anymore as it was before, at least during this administration. My view is almost always optimistic, and hopefully, the world is uniting around Europe. In the first quarter of 2025, key developments include Canada moving closer to Europe as the U.S. continues to threaten tariffs, China expressing dissatisfaction over Europe’s exclusion from Ukraine negotiations, and the U.S. imposing new tariffs. Tariffs lead to significant business uncertainty in the US, with US equities falling from their highs as tariffs are being announced, reversed, and modified a few times per day. Consequently, international relations are changing swiftly, and my bet is on Europe to emerge from the depths of overregulation and reliance on the US.

Hopefully, Europe is back, with Germany leading the way and changing itself to show the world that it is a leader in Europe. To be clear, this is just the beginning, and it is upon Europe to shape its own destiny. My main reason to be so optimistic about the European future is that everyone around me (both in and out of the financial sector) started to wholeheartedly applaud the U-turn made by the European Union and Germany grabbing the reins of our future.