Talks between kyiv and Washington seemed to be going well last week. The United States and Ukraine were considering creating a reconstruction fund to exploit the country’s resources, which represent about 5% of the world’s mineral resources. Part of the profits were to be used directly to repay American aid. At first glance, this agreement seemed beneficial to both parties: D. Trump gained privileged access to strategic resources, a priority for his new administration, while Ukraine sealed an alliance with a powerful partner, likely to bring stability and peace. In this context, V. Zelensky went to the White House on Friday to formalize the agreement. However, the meeting took an unexpected turn. Exit the classic and confidential diplomacy: the scene transformed into a tense confrontation under the eye of the cameras of the whole world! Donald Trump and J.D. Vance both raised their voices, and the exchange ended with the hasty departure of the Ukrainian president. Faced with this debacle, the Europeans were quick to react, in turn proposing their vision of peace. K. Starmer thus received 18 European leaders in London this weekend to discuss it. A two-stage solution was outlined: according to E. Macron, a truce would begin with the cessation of air and naval combat. Once peace is confirmed, European troops could be deployed on Ukrainian soil. This summit will also have made it possible to address the subject of European rearmament. The French president declared that the European Union should release €200 billion, partly financed by joint loans, in order to strengthen European defense capabilities in the face of the American withdrawal and the threats posed by Russia. He invited European states to target military spending of 3%-3.5% of GDP while mentioning a target of 5%. It should be noted that these additional expenses are an upward factor on European sovereign rates, particularly for the most indebted countries that have less room for maneuver. Long-term rates are not spared today: the German and French 10-year bonds are up by around +10 bps. It should also be noted that the S&P rating agency, during its first review since the passage of the 2025 budget, maintained France's rating on Friday at AA- but the outlook was lowered to negative.
While attention has focused on geopolitical tensions in recent days, let's not forget the latest announcements from the Trump administration. Washington has confirmed the implementation of customs duties on imports from Canada and Mexico, which will come into effect tomorrow. The level of taxes has not yet been established, however, and could be lower than the 25% initially planned, while both countries have made efforts to address American concerns. While these announcements are surely part of a negotiation strategy, the impact on the American economy is no less. The signals are numerous: household consumption expenditure in the PCE indicator fell in January (-0.5% month-on-month in volume) and the Conference Board's consumer confidence in February came out sharply down to 98.3 (vs. 105.3 in January). The economic dynamic thus appears increasingly fragile: the Atlanta Fed's GDP Now indicator anticipates a contraction in GDP in the first quarter of -1.5% at an annualized rate! Even if a large part of this negative figure comes from the recent deterioration in the trade balance before the officialization of customs duties, it is not excluded that the Fed will ultimately opt for a more accommodating monetary policy than expected... which would not displease a certain D. Trump…