Over the past ten days, a few significant risks to market stability have bubbled up.
The Ukraine/Russia peace path was abruptly reversed. The budget glide path was muddied, making the cornerstone tax cut extensions less certain. And the sustainability of the 90-day tariff reprieve with China came into question.
On the latter, Trump had a call with Xi last Thursday, and that set the table for an emergency meeting with U.S. and China trade delegations today. And we learned late this afternoon that those talks would carry over through tomorrow.
So, the outcome of a very consequential issue remains unclear.
What does seem clear, is that China doesn't seem to be entering these talks in a position of desperation — even after months of what the Scott Bessent has called an effective trade embargo.
Remember, this new spat started with Trump saying that China had "totally violated its agreement" made last month for the tariff reprieve.
And maybe it was because of this …
Ahead of today's meeting, China reported the third largest monthly trade surplus on record.
So, instead of choking on trade tariffs, they worked around them — shipping through other trading partners.
It seems obvious that the only way to resolve the China problem (i.e. its multi-decade predatory export model) is through a globally coordinated agreement with trading partners, to put China in the global trade "penalty box" (to isolate China).
But given how few trade deals have materialized, a unified global front against China won't be happening anytime soon.
With stocks trading at three-month highs and the VIX trading around four month lows, the market seems to be pricing in too much optimism for the outcome of these trade talks.
If we were looking for clues on the geopolitical stability front, we do have this breakout in silver that started on Thursday of last week, the day Trump and Xi had a phone call.
Silver is one of the biggest movers on the year, across global markets. And half of the move has come in the past week.
Take a look at the gold/silver ratio …
As you can see, this ratio is at extreme levels, which has historically been associated with extreme moments of safe-haven demand.
And in these past cases, the gold safe-haven demand leads, pushing the ratio to extremes.
Silver later follows (higher) on both industrial demand (in wartime) and relative value (as a safe haven asset).
And in these prior peaks, it's the rise in silver that pushes the ratio back down.
So, this surge in silver looks like a signal that perhaps there is more risk than markets are pricing in.
