The Trump administration has decided to defer tariffs on automobiles for a month. The problem, however, is that there is no predictability to the policy, and if tariffs are increased, it would be advantageous to shift production bases, but if the deferral continues and tariffs are eventually avoided, it will cost extra money. This uncertainty seems to have started to move money in the direction of avoiding the U.S. economy.

Following the change in U.S. policy toward Ukraine, European countries, especially Germany, have shifted significantly to fiscal expansion, and European interest rates have begun to rise and the euro has begun to rise in a paradigm shift. The US long-term interest rate fell to the 4.2% level and the Atlanta Fed GDPNow fell to -2.8%.

Europe’s decision to allow spending to exceed the Maastricht Treaty ceiling “only for military expenditures” has steered the region in a major rearmament direction. Germany, in particular, which has the most spending power, will amend its constitution to allow for massive military spending and infrastructure investment under the incoming chancellor, Merz. It will loosen the spending threshold for defense spending and create a separate special fund for infrastructure investment of 500 billion euros. After two years of low growth, Germany is expected to achieve a growth rate of more than 2%. At the same time, the rest of Europe will also benefit. Money that wants to avoid the U.S. will choose Europe in the future. European stocks are surging, especially defense-related stocks, and the euro is a recipient of funds that do not like the unstable Trump administration. U.S. exceptionalism seems to be ending. Since the beginning of the year, the market has been bearish on the euro, with the euro-dollar heading for parity, so it will not be possible to shift positions too quickly. This trend of euro strength is likely to continue regardless of the U.S. jobs report.

In Japan, the yen is appreciating on reports of wage hike demands exceeding 6% in the Spring Struggle. This is likely to support the Bank of Japan in its policy normalization efforts. The 10-year Japanese interest rate is now at the 1.5% level, partly due to rising European interest rates.
Be wary of dollar weakness.