Where is the straw that breaks the camel’s back?

May24-30, 2025

Big news. A court decision limiting Trump’s powers to set tariffs. True, the next day an appeals court stayed this decision, but the situation remained in limbo. Accordingly, China became more active, which forced Commerce Secretary Bessent to declare that “the negotiations have reached an impasse.” Accordingly, the markets reacted. Oil fell:

And stock futures fell:

As a result, the level of uncertainty in financial markets has increased, as has the assessment of risks.

Macroeconomics. The second estimate of US GDP in Q1 confirmed the first decline in 3 years:

Final sales were down 2.9% quarter-on-quarter, excluding Covid, the worst performance since late 2008:

Please note that this is at understated inflation. And if we calculate it minimally adequately, then we need to add at least 5%. And this already turns out to be a decline of 8% per year… This is even more than the 6% that we estimated the decline of the US economy at the end of the previous year. But in any case, more than 0.5% per month, which we have repeatedly talked about!

Sales in the manufacturing industry of Canada -2.0% per month, the 3rd minus in a row and the worst dynamics in 1.5 years:

PMI (expert index of the state of the industry; its value below 50 means stagnation and decline) of the Chicago Reserve District in the USA is 40.5! 18 months in the recession zone and again near multi-year lows:

Eurozone services business sentiment at its most pessimistic since 2013 (not counting Covid):

Tokyo Prefecture CPI (Consumer Inflation Index) in Japan (+3.4% p.a.) at 2-year high:

And prices without fresh food (+3.6% per year) are approaching a 44-year peak at the end of 2022:

The number of unemployed in Germany is +34 thousand per month. This is a 3-year maximum and the 29th plus in a row:

The indicator has broken the Covid peak (!) and reached its maximum since 2013:

US unemployment benefit claims at 3.5-year high:

The Bank of New Zealand cut its rate by 0.25% to 3.25%. The Bank of South Korea (-0.25% to 2.50%) and the Bank of South Africa (-0.25% to 7.25%) followed suit.

Main conclusions. The negative situation in the global economy is rapidly reaching the scale of the Covid quarantine. And according to some indicators, as can be seen from the previous section, this scale has already been exceeded. Inflation is growing (against the backdrop of the crisis and falling sales, companies are trying to compensate for losses by raising prices; tariff games and other risks add their role), sales are falling.

At the same time, the scale of the decline is becoming critical, but at the official level they are still trying to contain the situation. Of course, representatives of a specific business and/or household see an alarming picture, but total propaganda creates the feeling that this is a local situation, and in general everything is more or less acceptable. Which, as you can see, is not true at all.

The minutes of the last meeting of the US Federal Reserve showed the concern of board members about the breadth and depth of Trump’s tariffs, which create risks for the economy and inflation. However, the main problem is not the tariffs, but the fact that the situation simultaneously requires raising the rate (there is an increase in inflation expectations) and lowering it (a fall in GDP and final sales, see the second section of the Review).

In the current situation, any unexpected event could bring down the global financial system. It is almost impossible to predict when and why this will happen.