This is a big week for Donald Trump, perhaps the most consequential since his White House return.
It is crunch time on two fronts, both of which will have equally critical consequences for the rest of the world, geopolitically and economically.
First, the US President has bet his reputation – and the hope of a Nobel Peace Prize – on brokering a successful peace deal between Ukraine’s head of state, Volodymyr Zelensky, and his adversary, Russia’s premier Vladimir Putin.
It is obviously too early to know the outcome of these White House talks.
Yet if Trump fails to secure some sort of deal – which is most likely to see Ukrainian land in the east traded in return for security guarantees that it will not have to give up more to Russia – then all bets are off.
The worst outcome then is that the war will go on ad infinitum, maybe even dragging Europe’s military to the front line.
Rate clues: Federal Reserve chairman Jerome Powell will make his valedictory speech at the Jackson Hole symposium on Friday
Which is why it is so important that Trump is able to persuade both sides to find common ground. Secretary of State Marco Rubio put it bluntly during weekend interviews, saying: ‘You can’t have a peace agreement unless both sides make concessions – that’s a fact.’
What no one has any clue about as yet, though, is what concessions Putin might be willing to make.
Trump’s second big moment of reckoning – and one that the financial markets are watching – comes on Friday when Federal Reserve chairman Jerome Powell makes his valedictory speech at the Jackson Hole symposium.
They are also watching the UK where 30-year gilt yields are approaching the highest level since 1998 on fears that inflation is on the move again while growth is slowing.
Over the years, the Fed chairman’s speech on the final day of the central bankers meeting has become one of the most venerated events in the investment calendar, one that moves markets as it sets the speed and depth of the interest rate cycle for months to come. What
Powell has to say will give a clue to where interest rate cuts will go next. Trump, who has been playing Whac-A-Mole with Powell for months demanding the Fed cut rates, will be holding his breath – if that’s a possible feat for him.
Most Wall Street traders and investors expect the Fed to cut at its next meeting on September 17, hoping it will boost stocks to yet new record highs.
Yet a cut is not in the bag, despite Trump’s election promises to bring down borrowing costs.
Powell and his fellow policy makers will have more data to chew on before taking their decision: the next round of inflation and jobless figures.
The latest Personal Consumption Expenditures (PCE) index held steady for July at 2.7 per cent but was still above the Fed’s 2 per cent target while unemployment is rising again.
This puts the Fed in a tricky position because it has a dual mandate of price stability and maximum employment, a more important measure for Trump.
If Powell does not hint that the rate cycle is coming down, expect another round of name-calling.
Coal-fired ambition
Critical to any lasting peace settlement between Trump and Putin are the fate of Ukraine’s two eastern regions, Donetsk and Luhansk, and Crimea. These regions make up the country’s industrial heartland known as Donbas, short for the Donets Coal Basin, and were the first to be invaded more than a decade ago and are still mainly under Russian control.
Donbas holds more than half of the country’s hard coal reserves, valued at a cool $12 trillion, making them one of the biggest in the world.
On top of natural gas reserves, it is also home to critical minerals such as lithium, tantalum, cesium and strontium – all key for the green energy and defence industries. There’s more.
The Donbas has plentiful water supplies and fertile soil, making it perfect for cereal growing.
It is also one of the world’s biggest exporters of sunflower and rapeseed oils as well as soybeans.
Inevitably, the war has destroyed the coal industry while farming has been severely damaged, one of the reasons that food prices shot up as it’s such an important part of the global food supply chain.
And it’s also why Zelensky – who has been told by Trump in no uncertain terms that Ukraine cannot join Nato – would only dare to give up this land if given the most cast-iron security guarantees that Russia will go no further.
That will be the art of any deal, but surely better than war.
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