While the AI revolution continues to grow the economic and market pie, the geopolitical pie continues to be re-portioned.

Trump has used the past thirteen months to realign the world, away from Chinese influence, and back toward American leadership using the American consumer, security and energy as leverage.

This, as we’ve discussed throughout the past year, is the effort to create the global alignment needed to isolate China, to end China’s multi-decade economic war on the world. 

That said, Europe has to be on board, and yet the leadership in Brussels continues to walk the line of ambiguity, if not testing a plan B where they pursue a “third pole” of global power — which is only viable if they drift into further alignment with China (economically).

With that, Trump has levers to pull, to force their hand. 

The levers:  1) Withdrawing U.S. backstops and enforcing “burden sharing.” That creates massive reindustrialization/spending requirements, which puts pressure on already stressed sovereign balance sheets in Europe. 

2) Iran. The Iran War has created an energy shock that has exposed Europe’s energy dependence.  Europe now pays six times what America pays for natural gas — which puts pressure on already stressed sovereign balance sheets in Europe. 

3) Japan. Over the past week, Japan has intervened to support the yen. Japan’s top currency official said they face no constraints on how often they can intervene, and that it is in daily contact with U.S. authorities. 

Keep in mind, for years one of the quiet pillars of the global financial system has been cheap Japanese money. Near-zero rates in Japan made the yen the funding currency for global risk taking. Borrow yen, convert it, buy higher-yielding assets around the world.

It’s a key source of global liquidity. And when a major source of cheap funding starts to get squeezed, so do markets dependent upon that funding source.

That said, the yen carry trade has been slowly repricing over the past two years by the rising path of Japanese interest rates. And now we have yen intervention, with Washington openly in the loop (the currency market is Bessent’s wheelhouse). 

If this recent currency market action is about repricing one of the cheapest funding channels in the world, thoughtfully, as to not create a global market accident — then where would that funding pressure matter the most?

Europe.

Already vulnerable. Weak growth. An energy problem. Fragile sovereign debt. And a political class that has resisted alignment with Washington.

So, is yen intervention another lever to tighten the screws on Europe?

Maybe.

With that backdrop, let’s consider what has happened in recent days. 

Trump called on Germany’s Merz to fix his broken country. He pulled 5,000 troops out of Germany. Rubio suggested withdrawing 100,000 U.S. troops from Europe.  And then today, he posts this …

Great call. Then an ultimatum. Get all 27 EU members to sign off on the U.S./EU trade deal by July 4th, or tariffs “jump to much higher levels.”  There’s no chance that happens.  

On Iran. As of yesterday, Epic Fury “is over” as declared by Trump and Rubio. But operationally (the reality/the physics), nothing has changed.

The damaging energy shock/tax on Europe continues, indefinitely.