ISLA: Geopolitics and the securities finance markets
20 June 2025 Madrid
Image: Carmella Haswell
The outlook might not be as rosy as the Madrid Weather, but neither is it as cloudy as the UK, suggested Marion Laboure, senior economist at Deutsche Bank. Kicking off the first open discussions of this year鈥檚 International 兔子先生Lending Association (ISLA) conference this week, Laboure looked at some big picture perspectives in her talk, 鈥楩rom the Parliament to the Purse: The Influence of Global Politics on the Economy鈥�.
Perhaps unsurprisingly, President Trump鈥檚 tariff regime and the trade war took centre stage during her insights, though she did note that even during 鈥楾rump 1.0鈥� his love of tariffs was well known. What has shocked many in this field, Laboure highlighted, is the discrepancy between what the President said, and what economists were expecting 鈥� in effect he actually did what he said he was going to do.
Interestingly, suggested Laboure, her view is not slightly more positive for both the US and China, due to another unexpected move from Donald Trump, in that he came to the table and negotiated with China quicker than many were expecting, leading Deutsche Bank to revise some of its economic expectations accordingly. Despite this outlook however, she did still warn that debt sustainability at geopolitical flashpoints leave the world with a great level of uncertainty.
On this geopolitical front, the Russia-Ukraine war, the Middle East, and most recently Israel and Iran, are dominating many aspects of the markets. In Ukraine, Laboure noted, she expects a ceasefire to occur within the next 6 to 12 months. She also made the point that the push to increase defence spending in Europe from the US, will be a key issue on the Continent. Notably the recent German budget, she suggested, will have broader consequences in many areas of the European markets.
Returning to the trade war, Laboure emphasised the global tensions surrounding rare earth metals, and the insatiable global demand for semiconductors 鈥� where Taiwan plays a crucial role and has been on the US political radar for some time. Since Donald Trump鈥檚 reelection, Greenland, and more recently Ukraine, have become key for the President in what Laboure terms 鈥渢he vitamins of high tech鈥�.
This relationship between rare earth metals, critical minerals, and semiconductors, are playing a critical part in the US-China trade war. This importance, in turn, is in many ways being driven by the AI boom. Laboure emphasised that while it will take time for corporations to truly and fully implement and integrate AI, billions of dollars are being invested in the technology.
Digital assets, she argued, are another theme that will be impacting geopolitics. Separating the world into three effective regions 鈥� the US, Europe, and China 鈥� Laboure addressed the varying attitudes towards digital assets.
Europe, she believes, will likely see a digital euro in the next decade, though she is somewhat sceptical of the European Central Bank鈥檚 (ECB鈥檚) estimate of 2030. China meanwhile, has had a digital Yuan live in Taiwan for some time, though it has banned cryptocurrencies. The US on the other hand, particularly under the Trump administration, takes a negative view of digital assets, but is very positive on both cryptocurrency and stablecoins.
Stablecoins 鈥� a digital currency pegged to a traditional, less volatile asset in order to make them more stable 鈥� will be a key element in geopolitics, particularly for the US. As it currently stands, about 60 per cent of stablecoins are pegged to the US dollar, helping to drive demand for US Treasuries. Tether, she noted as the largest stablecoin issuer, is already among the top 15 Treasury order buyers for US bonds.
Looking at monetary policy, Deutsche Bank anticipates a 25 basis point cut from the US Federal Reserve in December, followed by two further reductions in Q1 2026. The ECB is expected to deliver two 25 basis point cuts 鈥� one in September and another in December 2025, while in the UK, Laboure noted the Bank of England is forecast to cut rates three times before the end of the year.
Concluding with a brief market outlook, Labuore believes US equity markets are expected to continue their upward trend, while commodity markets remain under pressure due to sluggish demand. This, she highlighted, may change quickly with developments in the Middle East. Gold, meanwhile, has shown its continued dominance as a safe haven during recent geopolitical turmoil.
In terms of the US, however, Laboure did note that the era of American financial exceptionalism may be drawing to a close, with, she believes, damage to the dollar鈥檚 dominance already partially done.
Perhaps unsurprisingly, President Trump鈥檚 tariff regime and the trade war took centre stage during her insights, though she did note that even during 鈥楾rump 1.0鈥� his love of tariffs was well known. What has shocked many in this field, Laboure highlighted, is the discrepancy between what the President said, and what economists were expecting 鈥� in effect he actually did what he said he was going to do.
Interestingly, suggested Laboure, her view is not slightly more positive for both the US and China, due to another unexpected move from Donald Trump, in that he came to the table and negotiated with China quicker than many were expecting, leading Deutsche Bank to revise some of its economic expectations accordingly. Despite this outlook however, she did still warn that debt sustainability at geopolitical flashpoints leave the world with a great level of uncertainty.
On this geopolitical front, the Russia-Ukraine war, the Middle East, and most recently Israel and Iran, are dominating many aspects of the markets. In Ukraine, Laboure noted, she expects a ceasefire to occur within the next 6 to 12 months. She also made the point that the push to increase defence spending in Europe from the US, will be a key issue on the Continent. Notably the recent German budget, she suggested, will have broader consequences in many areas of the European markets.
Returning to the trade war, Laboure emphasised the global tensions surrounding rare earth metals, and the insatiable global demand for semiconductors 鈥� where Taiwan plays a crucial role and has been on the US political radar for some time. Since Donald Trump鈥檚 reelection, Greenland, and more recently Ukraine, have become key for the President in what Laboure terms 鈥渢he vitamins of high tech鈥�.
This relationship between rare earth metals, critical minerals, and semiconductors, are playing a critical part in the US-China trade war. This importance, in turn, is in many ways being driven by the AI boom. Laboure emphasised that while it will take time for corporations to truly and fully implement and integrate AI, billions of dollars are being invested in the technology.
Digital assets, she argued, are another theme that will be impacting geopolitics. Separating the world into three effective regions 鈥� the US, Europe, and China 鈥� Laboure addressed the varying attitudes towards digital assets.
Europe, she believes, will likely see a digital euro in the next decade, though she is somewhat sceptical of the European Central Bank鈥檚 (ECB鈥檚) estimate of 2030. China meanwhile, has had a digital Yuan live in Taiwan for some time, though it has banned cryptocurrencies. The US on the other hand, particularly under the Trump administration, takes a negative view of digital assets, but is very positive on both cryptocurrency and stablecoins.
Stablecoins 鈥� a digital currency pegged to a traditional, less volatile asset in order to make them more stable 鈥� will be a key element in geopolitics, particularly for the US. As it currently stands, about 60 per cent of stablecoins are pegged to the US dollar, helping to drive demand for US Treasuries. Tether, she noted as the largest stablecoin issuer, is already among the top 15 Treasury order buyers for US bonds.
Looking at monetary policy, Deutsche Bank anticipates a 25 basis point cut from the US Federal Reserve in December, followed by two further reductions in Q1 2026. The ECB is expected to deliver two 25 basis point cuts 鈥� one in September and another in December 2025, while in the UK, Laboure noted the Bank of England is forecast to cut rates three times before the end of the year.
Concluding with a brief market outlook, Labuore believes US equity markets are expected to continue their upward trend, while commodity markets remain under pressure due to sluggish demand. This, she highlighted, may change quickly with developments in the Middle East. Gold, meanwhile, has shown its continued dominance as a safe haven during recent geopolitical turmoil.
In terms of the US, however, Laboure did note that the era of American financial exceptionalism may be drawing to a close, with, she believes, damage to the dollar鈥檚 dominance already partially done.
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