Matthew Lynn

It will be like Liz Truss on roller skates. The next election may still be four years away, and the manifestos still need to be fleshed out. Even so, the City has already started issuing stark warnings of a run on the pound if there is a Reform government led by Nigel Farage as Prime Minister. Of course, it is a measure of how far the party has come that the City is taking it seriously. The trouble is, there is also an element of truth in it. Reform would face a huge backlash in the markets – and the party will have to be ready for it.

China has wrapped up a pretty good trade deal. The UK has managed to agree to lift some of the US tariffs. With President Trump touring the Gulf states this week, they may soon have an arrangement in place, especially as Qatar took the precaution of gifting the president a new 747. Japan may well have something signed over the next few weeks. There is just one exception. Where is the EU’s deal? President Trump has described the EU as ‘nastier than China’ Despite the panic last month, it looks like the global trading system will soon be back to relative normal. The US and China, the two largest economies in the world, have called a truce, lowering tariffs on both sides.

Keir Starmer says it is a 'fantastic, historic' day after signing a trade deal with the United States, but is the agreement really something to celebrate? Ten per cent tariffs, announced last month, still apply to most UK goods entering the US The government is no doubt cock-a-hoop to be the first country to get a trade deal with President Donald Trump over the line, and there are a few wins: tariffs will come down for cars, steel, and potentially for pharmaceuticals, exempting UK exporters from the worst of the tariffs imposed on the oddly-named ‘Liberation Day’.

It was a mark of respect. After Warren Buffett, who can lay claim to the title of the greatest investor of all time, told his army of loyal shareholders over the weekend that he was finally stepping down from the Berkshire Hathaway empire he has built over the last six decades, the firm’s shares fell 5 per cent when trading opened on Wall Street. Buffett, however, is 94. It should not have come as a surprise to anyone that he was retiring. In fact, the fall proves once again the central insight on which Buffett has built his remarkable career – the markets are not as efficient as they think they are. His retirement should’ve been expected It is not hard to understand why the shares fell.

There is not much that Chancellor Rachel Reeves can look forward to right now. The Labour party has just been hammered in the local elections. The economy has stagnated, and government borrowing has started to spiral out of control. There is, however, this: the City now expects interest rates to start falling at the fastest pace since the financial crisis a decade and a half ago. There is just one catch: it probably won’t be enough to save Reeves's failing chancellorship. The Bank of England is widely expected to cut interest rates from 4.5 per cent to 4.25 per cent next week. Even better, the consensus among City forecasters is that we will see a series of rate cuts over the next six months that will bring rates below 3 per cent by the end of the year.

A deal will be worked out with China to reduce the tariffs. The chairman of the Federal Reserve won’t be fired. Over the last 24 hours, President Trump has softened his stance on two key planks of his economic policy. It is not hard to work out why. For all the bluster, Trump is ultimately a pragmatist – and that makes him a president the financial markets will live with.  The financial markets have soared today, and the dollar has recovered, while gold, the safe haven in troubled times, has dropped by $100 an ounce. The reason? A dramatic shift in American policy.

President Trump yesterday escalated his attacks on the Chairman of the Federal Reserve Jerome Powell over his reluctance to cut interest rates, prompting a fresh plunge on Wall Street. The President may appear determined to cut his central banker down to size. And yet the reality is that Powell is completely right not to cut rates – and the President won’t be able to fight the Fed forever. ‘There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,’ Trump said on Truth Social, his social media network, yesterday. It was the latest in a series of bitter attacks on Powell for holding rates steady even as there are signs the US is sliding into a recession.

The White House reportedly expects that a trade deal between the United States and the UK could be signed within the next few weeks. This should be a big deal, at least for the small island if not for the world’s biggest economy. There could be a grand signing ceremony at Buckingham Palace. Or at a state visit to parliament by President Donald Trump. Or, if nothing else, perhaps Paddington Bear could put in an appearance to boost marmalade exports. But there is just one catch. It will have to be sold to the public and business alike – and that will be very hard for the bitterly anti-Trump Starmer government. The final form of this supposed trade deal with the US has yet to be revealed.

Donald Trump has peered into the abyss. The US President watched the Wall Street meltdown and the global trading system (from which America benefits as much as anyone) start to collapse, and he hit pause. The conventional narrative will be that Trump has blinked, but I think he simply got what he wanted. Yesterday's decision to put a 90-day pause on reciprocal tariffs, while increasing the rate on China to 125 per cent, has certainly come as a relief to the markets. The S&P500 was up almost 9 per cent on the news. Investors can breathe again. It would be easy to argue that President Trump has simply chickened out of the fight. The tariffs were about to trigger a global recession, and the fallout from that would dominate the rest of his time in the White House. It is not worth it.

A Harley-Davidson will cost you a little more in France; Florida orange juice will be more expensive in Germany and American soybeans will go up in price everywhere across Europe. The European Union has decided to start taking the fight back to President Trump with a round of retaliatory tariffs. The trouble is, it is making a big mistake. Sure, we can all understand the desire to stand up to what it sees as bullying. But it is not going to win this battle.  In the wake of President Trump’s decision to impose a 20 per cent tariff on everything the EU sells in the United States, some form of retaliation was probably always inevitable. The bloc has just agreed on counter-measures worth €22 billion with the first round likely to be announced as early as next week.