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The revenge of the bond/stock/credit vigilantes!! As I predicted, in this 3-way game of chicken between Trump , Powell and Xi, Powell did not blink before Trump and the tit-for-tat trade escalation between Trump and Xi continued as neither side blinked relative to the other. Instead, market discipline forced Trump to blink versus most trading partners with the exception of China: Trump’s put strike price was always higher than the Powell put and the Xi put. And the market discipline that forced Trump to blink was not only a bear market in equities but also and more importantly the spike in bond yields and credit spreads (especially HY) and the risk of a disorderly collapse in the dollar. So Trump blinked and decided for the 90 days tariff pause. Now the big issue is whether US and China find a way to de-escalate their trade war. Markets have rallied in part on the hope that they will. But Trump feels stronger now that he blinked on most trade partners and markets have gone higher while Xi can’t lose face. Only a brokered phone call between the two may lead to a partial de-escalation but Trump will not offer a 90 days reprieve to Xi at 10% tariff. So it is not clear yet whether de-escalation btw Trump and Xi will take place… but as I argued market discipline would force Trump to be rational and blink first versus most trade partners and that reduced he risk of a global recession . That is why I was for once optimistic and my baseline was not a US/global recession unlike most sell side Wall Street research. In my December @ProSyn oped I wrote that market discipline, Fed discipline, some sensible advisors (Bessent, Miran mostly) and the thin majority in a Congress skeptical of full scale trade wars would be the 4 guardrails that would impose market discipline on Trump and prevent a US/global recession . The bond, credit and stock vigilantes ended up again being the most powerful people in the world! https://t.co/onefl4hnmq