What Elon Musk and the teary UK Treasury chief have in common

Jon Turek, head of global macro research firm JST Advisors, penned an absolute banger this week, drawing a parallel between how two recent well-publicized and market-moving events on either side of the Atlantic give us sharp insight into a critical dynamic for the global economic and financial market outlook.

Rachel Reeves became the UK Chancellor of the Exchequer (roughly the Treasury secretary, in US parlance) with a pledge to balance the British government’s books (a very big challenge — good luck with that!). Her job security was very publicly not backed by Prime Minister Keir Starmer during a session of Parliament, which fostered a spike in longer-term British bond yields.

Elon Musk became head of a new agency designed to cut government spending (DOGE) in the Trump administration, and enthusiasm over how his role could benefit his company Tesla caused the stock to more than double from shortly before the November 2024 US election through mid-December. He now finds himself in very public political and personal spats with the president, during which time Tesla’s share price has fallen about 14%.

Turek’s conclusion: “The ‘fiscal cutters’ have almost literally been run out of town.”

More, from Turek:

“There was something last week, that while at the surface had absolutely nothing to do with each other, it felt like it had everything to do with each other.

Last week we saw President Trump talk about the possibility of deporting Elon Musk, who has now begun his own political party. While across the pond, during a session of parliament, Rachel Reeves was seemingly hung out to dry by her Prime Minister in a way that led to an emotional reaction.

Now, I get these two things seem completely independent, but the underlying motif is quite clear. Both of these characters were brought into the arguably two worst fiscal situations in G10 to bring tough budget cuts and begin the process of returning fiscal discipline. Rachel Reeves was tasked with effectively being the opposite of the Conservative debacle culminating in the Liz Truss moment, and Elon Musk with DOGE was meant to usher in a new level of discipline to the federal government with aggressive spending cuts...

When you zoom out, it is hard to find a G10 market that is doing less fiscal than they did last year, and that is after five years of material budget deficits across the developed world.”

Turning this back to markets, he thinks the natural path forward is for global yield curves — that is, the difference between shorter- and longer-term borrowing costs — to continue to steepen.

“I think central banks will cut rates, but those rate cuts will both feel like ‘a lot’ and also insignificant,” he wrote. “They will feel like a lot relative to the inflation backdrop, but it is hard to see what they do to the economy in a world where the level of back end real yields is so driven by the current fiscal paradigm. That is a very constructive world for steepeners.”