Authored by Michael Every via Rabobank,
24 Hours
US retail sales soft, yields down, stocks up, oil up.
That’s one way to look at the last 24 hours.
Or one can look at it –and the next 24 hours– more deeply.
Let’s start with geopolitics, then look at AI, and try to tie it all together into a better market take than the above.
As @desmondshum underlines:
“Europe isn’t merely “slowing.” It’s being structurally out-scaled and outbid – squeezed between an America that owns the high-tech frontier and a China that has moved from low-end volume into the mid-tech industrial core Europe once dominated…
…Without a hard turn –fast trade defence, real industrial policy, and bloc-level unity– Europe’s “model” doesn’t get reformed; it gets liquidated.”
Macron just declared a European ‘state of emergency’, arguing EU-US tensions are far from over, and the bloc must become a global economic power or risk being swept aside.
He called for Eurobonds to Make Europe Great Again. Within hours, Germany shot that down. Macron called for ‘Made in Europe’ policies.
They were also shot down by Germany and Italy. A new French report argues Europe needs to immediately impose 30% tariffs against China or devalue EUR vs CNY by 20-30% (how?) to retain its industrial core. That will get shot down – what then?
In 24 hours, an informal Leaders’ retreat with Draghi and Letta dedicated to ‘strengthening the single market in a new geoeconomic context’ will, zeitgeistly, be held in Alden Biesen castle to assess how the EU should position itself for increased –and not always fair– economic competition and trade imbalances.
Draghi now favours a multi-speed/tier Europe, not one speed for all. But what will the others say? There’s parallel talk of Ukraine entering the EU as soon as 2027. How literally market moving will it all prove? Don’t sweep those questions aside!
Finland’s President expects the US will use the looming Munich Security Conference to reset strained EU ties. That follows Europe agreeing to join the US critical minerals plan, which limits its options for strategic autonomy, and as: the EU parliament agreed to proceed with the EU-US trade deal; EU capitals say deleting US tech is not realistic; US-backed start-ups won a major German military drone contract; ‘even some of Mercosur’s biggest fans are nervous about moving too fast’, and the European Commission will unveil new security measures on access to public funding in March designed to shut out Chinese companies in particular.
Or Munich could go as badly as last year. The US is likely to be enraged by recent EU actions against its tech firms and claims of election interference, as the conference report released ahead of it warns Trump is a “demolition man” and “most of Europe is watching the US’ descent into ‘competitive authoritarianism’ with rising concern or even horror, wondering how resilient US democracy really is.” That said, the US ambassador to NATO just underlined the US just wants Europe to take primary responsibility for European defence as soon as possible, not as soon as comfortable – and there is a short shortlist of EU geostrategic options if Munich sees a new crisis.
Regardless, Europe needs to do much more and faster.
As Russian casualties in Ukraine surge, Estonian intelligence claims its shell output soared to 7m in 2025, up from 4.5m, and it’s bringing drone training into schools and sucking more of the private sector into its war economy. To match these “preparations for the next war”, as Norway warns Russia could invade it, Europe will need to keep pace. The former head of Britain’s armed forces, with eight days of ammo, says Europe ‘must become a military superpower.’ Add that to Macron’s list?
Meanwhile, Israeli PM heads for the US to meet Trump as we wait to see if an Iran deal is struck, or if Iran is struck; and underlining how fast things are moving, Turkey –next to Europe– says it could join the nuclear arms race if Iran acquires a bomb.
So, what will Greece then want?
Let’s now turn to AI, where developments are as rapid and tectonic as in geopolitics – and the two are linked.
Many talked about AI as a meme to chase, a bubble, or something that won’t really impact them that much. Yet @mattshumer_ argues this is like early reactions to Covid headlines from China.
(There, I guessed what would happen immediately, and recall being told a first estimate of the impact on the global economy was to lower Chinese GDP by 0.1% in 2020, full stop: I couldn’t stop my exasperated reaction.)
Shumer argues we already have commercial AI, with adverts to keep prices down, that’s transformative even for small businesses: and it destroys swathes of white-collar employment. Software now creates its own software, instantly. Wall Street is already shorting sectors seen as prone to being replaced by AI, says Bloomberg. Some may not exist soon: recall High Street travel agents? How long until we say, ‘Recall brokers? Coders? Lawyers?’ Or analysts who tell you what a Bloomberg AI said a few hours previously. I may risk looking like a horse’s backside after mocking early iterations of AI –I reprinted the hilarious first AI script for a John Wick movie also involving horses– but an analyst who can’t see this AI trend upends everything around them risks being a loyal workhorse staring in bemusement at the first car.
Neo-Luddites will arise: but failing a Butlerian jihad, every economy will demand AI that creates AI and AI-driven robots that build more robots, which can work and fight wars.
Human intelligence should be able to project what demand is going to look like. Human cynicism and history will speak to the rewards that will flow to the winners, and the penalties, in terms of relative loss of wealth and power, which will be dumped on the losers.
However, as @ctindale points out, and some humans didn’t get until recently, unlimited AI power still requires limited physical inputs. It will need vast amounts of cheap electricity; metals such as copper, where supplies are limited (and the US and China have built stockpiles); rare earths; oil, for the plastics; and midstream facilities like smelters and refineries – things the liberal world order told Western economies not to build.
This will be zero-sum because of the military component and demand vs supply. It will therefore require control of resources and mines; ports; ocean carriers; and naval chokepoints. It will essentially be the 19th century race for steel, or the 20th century race for oil or nuclear power – but this time with a sci-fi multiplier for those who get there first and can sustain a system which improves itself. If you can’t do any of the above, you either join a power who can, on its terms, or risk suffering the fate of countries who didn’t keep up with tech changes in the 19th and 20th centuries – which didn’t allow them comfortable artisanal lives in bucolic castles.
Obviously, this has major implications beyond markets and high-level summits.
If you think the liberal world order is holding on by its fingernails now, and it is, try adding mass white collar unemployment –the demographic that starts revolutions– to the mix.
Ironically, the one upside may be if one has a shrinking workforce, as Boomers and Gen X can retire, allowing the jobs that remain to be done by AI and robots. How non LWO economies, and those with growing labour forces, fare remains to be seen.
If you think our institutional geoeconomic architecture just rides this out, and an abstract national interest rate from a central bank has any meaning at any level in a world in which everything starts to revolve around free brainpower (AI) and free labour (robots), based on the supply of limited resources that some have and others don’t, but everyone wants,… then I have a nice carrot and some oats for you to munch on.
And you are already wearing your own blinkers.
Then it’s off to the glue factory, perhaps.
