This is a short note about the current tense geopolitical situation, which could soon affect the financial market more profoundly. 
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‌Lately, China has made what can only be described as a foreign policy success of historical dimensions [See Insightview's Morning Briefing on March 10]. China brokered a "peace deal" between the Shia regime in Iran and the Sunni regime in Saudi Arabia [read the article, Iran and Saudi Arabia agree to restore relations]. The prime authoritarian, China, has become the primary “friend” of authoritarian leaders (and wannabes) worldwide. Beijing does not offer an ideological alternative but attracts other countries with financial, technological, and infrastructure promises and projects, not principles [See more in the Outlook 2023 slides presentation here].  

At first glance, the deal can only be described as a defeat for the United States. Also, this is a defeat for the European Union, not least Germany, which has put much effort into finding new energy suppliers in the Middle East. Furthermore, it is a slap in the face to Israel, which has, in many ways, "betrayed" its old allies in the West by, among other things, remaining neutral regarding Russia's invasion of Ukraine [read the Politico.eu article, Saudi deal with Iran worries Israel, shakes up Middle East].

How is this connected to the financial market? China's success among authoritarian regimes could further promote RMB internationalisation. One cannot rule out that the yuan could one day be the main trading currency for oil from Opec+ [read also the Nikkei Asia article, What's in store for yuan internationalization in 2023?], although there is still a long way to go. Nonetheless, the RMB poses a long-term threat to the US dollar's status as the main reserve currency. This is bad news because it means Washington is "finally" forced to worry about its public sector debt. The timing could not be worse. US public debt is rising, and the need for refinancing has risen because of a falling average maturity of federal debt [read today's Insightview article, USA: Fiscal balances deteriorate as the Federal Reserve creates headwinds - and will continue to do so. Washington will soon have to raise defence spending markedly].

This time, the US Federal Reserve is not expected to come to the rescue unless the stock market shows the same kind of collapse as in 1987, 2001, 2008 or 2020. The US economy faces an inflation problem, which could worsen in the coming years [read the article, US regulators protect Silicon Valley Bank deposits and shore up financial system]. The USA's CHIPS Act and the Inflation Reduction Act will bring more jobs to the USA from China and the EU, making the inflation task of the Federal Reserve more challenging. 

Also, a dramatic deterioration in the geopolitical situation means that Washington is "forced" to boost military spending dramatically in the coming years. The US is not only facing a threat from China and Russia. It is probably only a question of when North Korea, Beijing's useful "pawn" in the geopolitical chess game, makes an unforeseen move which will force the White House to act militarily not far from Beijing [read the article, North Korea fires submarine missiles in response to huge US-South Korea military drills].  ‌The "card house" is shaking in the financial market, which makes the task of central banks complicated - but due to problems they created in the first place. 
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‌13. March 2023 - No updates from April 17th to April 28th
‌13. March 2023 - USA: Fiscal balances deteriorate as the Federal Reserve creates headwinds - and will continue to do so. Washington will soon have to raise defence spending markedly
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