Black Hole
After markets fell into a black hole: All good after Trump's U-turn?
Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. - Winston Churchill
I want to kick off this week's "Weekly Wintersberger" with a side note. Largely unnoticed because of the tariff situation, Germany’s conservatives and Social Democrats have agreed on a coalition program, finally putting a new German government on track.
After soon-to-be Chancellor Friedrich Merz and his Social Democratic counterpart Lars Klingbeil pushed their financial "bazooka" through the outgoing Bundestag, the path seemed set: more debt, less fiscal restraint, and Merz steadily abandoning many of his campaign promises. Hence, it’s no surprise, the right-wing AfD has overtaken the CDU/CSU in recent polls.
The key message to Donald Trump is: Germany is back on track. – Friedrich Merz
The coalition program reveals two things. First, the SPD successfully watered down many of Merz’s demands. Second, Germany will be unlikely to meet the EU’s growth and stability rules in the coming years. The program blends tax cuts, farmer subsidies, and Keynesian demand policies—business as usual in a world changing at breakneck speed. Given this, high expectations feel misplaced.
Yet, in turbulent times, boring can also mean stable. German government bond yields have navigated the storm with relative calm, especially compared to the upheaval in the US and UK. If Trump’s election sparked any hope of a focus on sound economic policy, that hope has faded fast. The following recap illustrates that the man and his followers remain as unpredictable as ever.
Trump supporters have launched a full-scale campaign of mental gymnastics to defend his tariff policies. When yields and stocks plummeted, they insisted the plan was to drive down 10-year yields. Sure enough, the sell-off intensified from last Friday into Monday morning, with Trump and his team doubling down on their chosen course.
In a long-term chart, you wouldn’t even notice” the recent market declines, Treasury Secretary Scott Bessent told Tucker Carlson in an interview released Friday. “What’s happening with the market, I’d say it’s more a Mag-7 problem”—referring to the big-tech stock cohort—“and not a MAGA problem.”-Bloomberg
You might recall that I wrote last week that the yield drop tied to these policies seemed feeble, hinting that something was brewing. And indeed, on Monday, the US bond market abruptly began to sell off.
By Tuesday evening CEST, US 10-year yields were comfortably above 4% again. As yields climbed, the narrative flipped: the tariffs were meant to force countries to negotiate. No matter the market’s moves, Trump’s team and supporters hailed their master’s “Great Plan.” It almost felt like North Korean propaganda, not American.
Meanwhile, China announced it would hike tariffs on US goods from 34% to 84%, effective April 10. Then, on Wednesday morning (CEST), US yields surged, hitting 4.50% within hours. While some speculated China was dumping US Treasuries, the more straightforward truth likely lies with some hedge funds caught in a bind. That unwinding of some of their Treasury basis trades just pushed rates higher.
With neither the yield nor negotiation theories holding water, the tariff goal morphed again—now it was about pressuring the Fed to cut rates. At that point, I lost track of the narrative, but as I write, it seems to have circled back to the negotiation phase. On Wednesday, after hedge fund titan Bill Ackman griped about tariffs for days only to fall back in line on Tuesday, Trump suddenly posted on Truth Social: “This is a great time to buy!!!”
Hours later, he dropped another bombshell: tariffs would be paused for 90 days on all countries except China. That was all the market needed. The S&P soared 6.7% in half an hour and is now up about 8% from pre-statement levels. US Treasury yields retreated, though only by roughly 20 basis points. Side note: Despite Bessent’s talk of prioritizing Main Street over Wall Street, it’s clearly still Wall Street first.
Absurdly, Trump supporters still insist this chaotic market reaction was “Trump’s plan all along.” Bessent claimed, “No one creates leverage for himself like @POTUS,” prompting a flood of comical responses from the faithful. Please enlighten me on this grand plan—I’m utterly lost.
Commodity prices also bounced back after the 90-day pause, suggesting lower oil prices aren’t a priority. I’ve given up on finding a coherent thread here. I doubt that Trump knows what he’s doing, despite his followers swearing that it’s all “Art of the Deal.”
Meanwhile, the fact that tariffs on China remain intact has barely registered. Yet Trump’s Commerce Secretary pick, Jason Lutnick, now claims the goal is to fix global trade and cut China out. That's an odd takeaway, considering Xi just watched Trump retreat from his “no retreat” stance in record time. My hunch? His negotiating leverage took a hit—but I’d welcome insight from a negotiation expert.
So what does this mean for markets moving forward? Did the bond market’s sell-off force Trump’s tariff delay, and is the worst over? Despite all denial—that’s almost certainly what triggered his U-turn. Still, I don’t think we’re out of the woods. Prolonged market drawdowns often see a counter-rally after an initial 20% drop.
During the GFC, the market slid 20% by late 2007, then rallied over 12% in two months—only to bottom out in April 2009. Sell-offs thrive on uncertainty, and with the tariff narrative shifting daily, I doubt that uncertainty will fade. That GFC example isn’t a prediction—markets rarely repeat precisely—but a reminder not to get swept up in this rally. A broader look at the economy is key.
Speaking of which, this week’s Redbook Index quietly showed retail sales jumping from 4.8% to 7.2% year-over-year. That’s a robust figure, undercutting any notion of imminent real-economy weakness. Strong data like that could spell trouble for bonds, paired with the tariff confusion.
Still, I wouldn’t lean too heavily on 2008 parallels. In my opinion, the 2020 COVID crash feels closer: An exogenous shock (the virus) spiraled into chaos when global lockdowns snarled supply chains.
Tariffs, as a tool to reshape trade flows, could trigger a similar mess. “Bringing production back to America” isn’t just about final goods—it’s about rethinking entire supply chains.
Take BMW’s decades-old South Carolina plant—billions invested, thousands of jobs, billions in exports. Yet Trump advisor Peter Navarro told CNBC it “doesn’t work for America.” “It’s bad for our economics, it’s bad for our national security,” he said.
Whether the aim is full US production or “friend-shoring,” reorganizing supply chains isn’t quick. And how do you plan for that with a president who flips overnight? The uncertainty makes companies hesitant to invest, which could dampen GDP more than Trump hopes. Last week’s weaker-than-expected NFIB Small Business Index backs that up.
Friday’s jobs report—eclipsed by the tariff circus—further dashed Trump’s rate-cut dreams and showed government job growth outpacing losses, rendering DOGE efforts moot.
Talk of a balanced budget feels like pure theater. Add Defense Secretary Pete Hegseth’s trillion-dollar defense budget, and you’ve got higher spending and—assuming Trump’s tax cuts pass—lower revenue.
Despite Trump’s pleas, the Fed isn’t rushing to cut. Powell made that clear at a Virginia conference last Friday, clashing with market bets on three cuts this year (down from five before Trump’s Wednesday pivot).
In short, markets might cheer the tariff delay a bit longer, and bonds may catch a breather. But uncertainty, lofty earnings expectations, and short-term costs from supply-chain shifts could spell headwinds for stocks. I think stock bulls should tread carefully. The bond market’s calm after Trump’s U-turn could unravel if my hunch about higher deficits and slower growth holds. Yields may not have much room to fall—one will need to watch how it plays out further.
German Bunds tell a different story. They’ve erased losses from the “bazooka” announcement amid the turmoil, but fresh coalition details could pressure them downward. Meanwhile, gold hovers near all-time highs, its safe-haven status shining through Wednesday’s policy shift. The real risk for all assets? A stock market spiral where investors dump winners to offset losses, à la 2020. Central banks might then slash rates—but recall how yields spiked after 2020’s emergency cut.
For now, the end of the world is on hold. That doesn’t mean markets are safe. Maybe they’re still inching toward a “Black Hole.”
I fall into a black hole in my head
Reach into the darkness for what's left
I'm fighting the gravity
It's pulling the worst part out of meWe Came As Romans - Black Hole
Have a great weekend!
Fabian Wintersberger
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All my posts and opinions are purely personal and do not represent the views of any individuals, institutions, or organizations I may be or have been affiliated with, whether professionally or personally. They do not constitute investment advice, and my perspective may change over time in response to evolving facts. IT IS STRONGLY RECOMMENDED TO SEEK INDEPENDENT ADVICE AND CONDUCT YOUR OWN RESEARCH BEFORE MAKING INVESTMENT DECISIONS.
You are a wonderful writer, and We Came as Romans is a wonderful band :)