Three surprises that might spook the markets

Katie Martin (0:06)

Pushkin. You know what? The Rolling Stones had a point when they sang that you can't always get what you want. The supposedly all-powerful Donald J. Trump is figuring this out too. What he can get is his big, beautiful budget, which managed to get through Congress a week or so ago, warts and all. His radical rewiring of global trade is taking a little bit longer though. Right about now is supposed to be the end of the delay on the super-aggressive trade taxes he outlined back in April. And yet now we have, surprise, surprise, another delay, albeit with some very punchy tariffs outlined for Japan and South Korea. Now listeners, if you feel like you're losing your marbles and you're trapped in ground hot day going round and round in circles, then I hear you. I'm exactly the same. So today on the show, we're asking what ties these two major policy platforms together? And crucially for nerds like us, what markets make of it all?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, the world's greatest city. And I'm joined down the line from the inferior New York City by Admiral Robert Armstrong from the Unhedged Newsletter and his able deck hand, Aiden Reiter, or what is left of him after losing all the moisture in his body on a roasting hot train this morning.

Aiden Reiter (1:37)

It's true.

Rob Armstrong (1:38)

The good ship Unhedged is in New York waters and it is on fire because the temperature here is enough to just to have wood spontaneously combust.

Aiden Reiter (1:49)

And Rob and I are on opposite sides of the same train line and that same train line was not working today.

Rob Armstrong (1:54)

Was not working today. So it was a rough commute. It was a classic July New York commute.

Katie Martin (2:00)

Yikes.

Rob Armstrong (2:01)

The odors, Katie. The odors.

Katie Martin (2:05)

Aiden, if you're trapped in a small room with Rob right now, then I say goodbye.

Rob Armstrong (2:09)

Yes.

Katie Martin (2:10)

So listen, you two. For those of us who are blissfully unaware of what Uncle Sam is up to, get us up to speed here. First of all, Aiden, tell me about this budget.

Aiden Reiter (2:22)

Yeah, the US. Congress recently passed Trump's big, beautiful bill, which was kind of his all-in-one big budget package. It was signed into law by the president on July 4th, American Independence Day. And it is a big whopper of a bill. Essentially, the main component is it keeps Trump's tax cuts from his first term on the books and it shines them into law. And then it adds other random tax cuts he promised on the campaign trail. No tax on tips and those types of promises. It also slashes other programs that the government had given out. So it makes changes to how the government pays for health care for poor people. It changes the government's previous electric vehicle subsidies and various electric manufacturing subsidies. And then on top of that, it also raises the US debt limit. So it's just like all the things you could imagine a bill would do are squeezed into this package.

Katie Martin (3:14)

I think sometimes people on this side of the pond don't realize, but it's literally called the one big, beautiful budget act. What's the exact name of it? This isn't just an exaggeration or just hyperbole. This is literally the name on the piece of paper.

Aiden Reiter (3:29)

It is the BBB, the Big Beautiful Bill, which is also what the Biden administration had their own BBB, which was billed back better. So they're copying a little bit.

Rob Armstrong (3:39)

I do like a bit of alliteration. I will say that in defense of the bill.

Aiden Reiter (3:42)

Yeah, and it's also a really great illusion to what America's credit rating will be in the future.

Katie Martin (3:48)

So, hey!

Rob Armstrong (3:49)

So the most important thing is that it increases the deficit. Just a few months after, we had what might be described as a kind of fiscal scare. And now we're making the link to the tariff policy. After Trump announced the Liberation Day tariffs on that weird piece of poster board in the Rose Garden, markets suddenly had a little panic about the fiscal future of the United States. When bond yields rose and the dollar fell, that has since subsided that scare. And the Republican Party, by a hair, has passed a bill that pretty significantly increases the deficit and the debt in the future. So, we're going for it, man. We were, we did not, as a country, get scared straight.