Loading summary
Transcript63 lines
- [00:09]
A
Hello, everyone. Hello out there and welcome to another edition of Macro Mondays. My name is Mig Rosenhald and I'm your host and with me, as usual, my partner in crime, Andreas. Welcome to the show.
- [00:20]
B
Thank you very much, Miguel.
- [00:22]
A
Another weekend, another Monday, another Trump scare, but not as dramatic as the past two Mondays. Has been a little quieter in the office today, Andreas.
- [00:31]
B
Yeah, but you know, it seems like a pattern now that, you know, late Friday, European hours, we get some sort of new message on, on tariffs. We obviously got the one related to is it called reciprocal tariffs on Friday. And you know, it scared me a little bit when I read those headlines initially. I'm now a lot more calm about them since, you know, some of the big countries, at least worldwide, they have nothing to fear from such a tariff plan, while some emerging markets may suffer a lot. But we can get back to that. But maybe, Mikkel, we should discuss how to handle Donald Trump.
- [01:13]
A
Absolutely.
- [01:14]
B
And his tariff plans, because I'm almost tempted to give you a handshake like the Japanese PM did on Friday, because right after these headlines, I think that's his name visited Trump and the Oval Office. And the takeaways are pretty clear in my opinion. It seems like he managed to handle Donald Trump and it's probably the first foreign leader managing to do so.
- [01:45]
A
Yeah, with one big exception. We can get back to that as a certain Benjamin Netanyahu. But yes, apparently we not quite sure what he promised Trump, but at least he got away from the meeting without a to do list, it seems, which is what most leaders get after Donald Trump these days. It seemed like he handled the potential tariffs quite calmly. All the talk about bringing down the US Trade deficit towards Japan, he took relatively calmly, agreed to buy more liquid natural or liquefied natural gas from the US and seems like he's building quite a rapport with Trump, which is more than you can say for most global leaders right now. So this might be a blueprint. Get in there, agree to most of the stuff he's saying, and try to get out of there with a deal and focus on what's important. So. So, absolutely. I still think Benjamin Netanyahu, having somehow managed Trump, that he needs to invade Gaza and take over if a creator of a country is a bigger accomplishment. But we are seeing some people making headway potentially. Also Vladimir Putin, that's for now mostly in the rumor mill. We can touch a little bit on that later perhaps. But very interesting address. Before we get further, let's just remind everyone that this is a sneak peek into our Analyses that we do at Real Vision. You have put out your, your weekly Steno Signals article. I think it's out today. Real Vision. You have to be a Pro Pro Macro member to access that. We'll give a little bit of a sneak peek into the thinking, but you get all the juicy analysis, have to sign up for that. And then you have to remember that even though we try to be very actionable, that we are data driven, etc, that's our trade recommendations. They might, as we always say, sometimes.
- [03:28]
B
Be, sometimes may be good, sometimes may be.
- [03:37]
A
Exactly. Thank you for that, Peter. Always, always. Andreas, we have a new competitor in the macro space, in the macro analysis space it seems on X even. And it's this guy.
- [03:50]
B
He, he might be the first Nazi macro pundit ever.
- [03:54]
A
You know Kanye, none other than Kanye.
- [03:57]
B
Please, please don't stop this guy. You know, it's. I'm the tremendous source of entertainment throughout the weekend, so very good to. You know it's obviously been crazy to follow his tweeting activity, but this tweet was pretty interesting because I think he refers to the overnight reverse repo facility at the Fed reserve. And I think it goes to show how we've managed to democratize liquidity analysis here at Real Vision when even Kanye is tweeting the fourth biggest rapper perhaps talking about the Forex repo. But on a serious note Mikkel, the overnight reverse repo facility is close to the zero lower bound. And I think that is what Kanye refers to here, potentially at least. And it basically means that this source of liquidity from the Federal Reserve is close to being empty. So from from here on they basically have to find a new liquidity trick up their sleeve to ensure that liquidity developments are benign in dollar markets. I think they will get some help from the US treasury over the coming weeks because the US treasury is close to exhausting all of their so called temporary special measures after the debt ceiling took place during January. Meaning that the so called treasury general Account, the amount of idle cash that they hold at the Federal Reserve will have to be used as a funding source through the next say six to eight weeks and we at least banks will be on the receiving end of all of those dollars. So after that the Fed will simply have to find a way of adding liquidity to dollar markets to ensure an orderly market functioning. And that's a pretty bullish scenario. So bullish that even Kanye let's figure it out. But apparently it's not good news for Ethereum.
- [05:58]
A
No, one thing he's absolutely not bullish on is this tweet I really like as well. Very, very direct analysis, directly actionable. Fuck Ethereum. Essentially. That's. Yeah, it's out there.
- [06:10]
B
Yeah. But again, on a serious note, if we look at, you know, this is kind of, to me, a good gauge of the sentiment around Ethereum. Have to say, yeah, pretty decent gauge. But if you look at the speculator data on Ethereum, we've seen a new record short in Ethereum over the past week and we don't need a lot of good news to wrong foot that entire speculative positioning against Ethereum now. So I'm not trying to make like a big fundamental case for Ethereum here, but we don't need a lot of like trigger events to see Ethereum breaking a lot higher from here, given how bad the sentiment is, given how short the market is positioned relative to Ethereum. So let's see if we get a soft inflation report later this week. I think we're flying in crypto space again.
- [07:04]
A
So you're saying that this is the, the absolute low point on sentiment on Ethereum. This marks the.
- [07:10]
B
There could very well be. I remember Paris Hilton giving an interview on CNBC when bitcoin peaked during the last cycle, saying that she was involved. Maybe this is the reverse indicator of that. I don't know.
- [07:23]
A
Great stuff. Andreas, Andreas, let's, in all seriousness, let's just dip our toes into your state of signals. You wrote about the outlook for the business cycle in 2025. What, what can people find in the article?
- [07:35]
B
Well, I, I think if we cut through all of this noise around tariffs, around Kanye, tweeting, etc, we actually find pretty promising science beneath the hood. And when you look at the production cycle, so basically physical stuff being produced in the economy, we're talking about improving order books from very low inventories. So it's a, it's a very benign scenario. And the rate cuts that we saw through 2024 will slowly but surely feed into the business cycle this year. Remember that these interest rate cuts, they work with the lag. And we saw bond yields coming a lot lower over the summer last year and it will probably show up in the data in the US economy, say from springtime and onwards. So I'm pretty certain that we will have a strong development in the economy, a strong credit creation, a strong liquidity development. Setting all of this noise aside, and it is so tempting to trade on these headlines from Donald Trump, every time you see new tariffs being implemented, new countries being the center of attention for the trade frictions and all of that but the underlying business cycle is, is basically what you need to assess when you invest rather than these headlines. And this is a really, really good chart to explain why. Because if you look at the business cycle right now, I think the overwhelming conclusion is that the service sector is doing better than the manufacturing sector. So, you know, services around food, services around consulting, all of that, people, businesses, they're doing well, but we're starting to see some softness in that part of the economy. Fair enough. That's typically what happens with the time lag to all of the interest rate hikes and the wage growth that we've seen from 22 to 24, basically. But the good news is that the manufacturing cycle, which is basically the cyclical part of the economy, is starting to pick up. And the dark blue line here is the spread between manufacturing and services. So if it picks up, it means that manufacturing is gaining momentum relative to services. And that's basically all you need to know as an investor because that's telling for the future direction of the economy. It's not telling you about the past. And the future direction is pretty bullish still, especially if we pair this with rate cuts from the Fed. And as you can see, the spread between these two sectors is very highly correlated to returns in risk assets, in crypto, you name it. So I think it's too early to call the peak here. I basically cannot remember a bull market with a weaker sentiment than what we are faced with right now. You know, everyone I talk to find the peak to be in and I'm not sure, you know, given how solid a forward looking indicator of the manufacturing cycle is.
- [10:41]
A
So are people overreacting or reading too much into the Trump headlines and simply not focusing enough on the actual economy underneath?
- [10:50]
B
Just see this show, Michael. We spent 10 minutes discussing these tariffs from the get go of the show every week and ultimately equities are up by the end of the week anyway. More or less.
- [11:01]
A
Right. Smashed on Monday.
- [11:02]
B
And then I know that US equities have been sort of sideways to slightly down since December, but equities elsewhere around the globe are basically through the roof. German equities, Chinese equities are doing really well, especially in the tech sector. It looks more like a 2021 scenario than anything to me.
- [11:23]
A
Okay, in a little while we'll get to some of the big numbers coming out this week and a bit of a preview of that. Remember that no matter which platform you're on, you can ask live questions and we'll try and pick up as many of them as we can. Andreas, just to sum up this part of the show and you can obviously read much more in your Pro Macro article, how do you play this? Pro cyclical?
- [11:47]
B
I'd like to show a few charts on what a pro cyclical macro environment looks like. A good example of it is that we see a rising demand for stuff and by stuff I mean everything from food to energy to raw materials. And we are starting to see signs of a pickup in for example, food inflation. And that's to make a clear example of a pickup in demand. And this is a good chart showing why we, we're starting to see the first signs of food inflation in the producer leg of the supply chain at some point during this year. Sorry Donald Trump, you start, you'll start to see this in Walmart as well. And we're already starting to see egg prices going bananas for some reason. Egg prices are already always early in the cycle. I, you know, I'm not a farmer so I have no clue why, but egg prices are really early in the and I think this will spread to everything from soft commodities to hard commodities. Gold is still super bit this week. Copper is through the roof. You know, this is a sign of activity actually picking up out there, right? Not in, not in the service economy, not in the data center economy and the real deal. And that's basically how you describe a pickup in the real economy. And I think that's basically what you need to take your investment decisions from that, that, that outset. It means that a lot of commodities are still cheap. I have a, an overview on the next page and if you want to see our top picks, go go to the Pro Macro section on Real vision. But you know, the most right hand column here shows the spread between the current commodity price development and where it should trade given where the business cycle is heading. And you know, the bigger the number in green, the more negative basically the better, the bigger the fair value gap. So you know, everything from copper to sink, whatever looks like a buy. So and, and this is not bad news. It basically means that the economy is starting to grow in very cyclical terms. It's no longer just a data center upswing, it's no longer just a service sector upswing. It's also a production upswing actually that's.
- [14:22]
A
Bought and sold, as I usually say. Interesting. So Andres, what, what the, what type of equities could be interested in this.
- [14:28]
B
If you're not into commodities, you know, financials. I think the banking sector is a good example of a sector doing well when there's a pickup in the actual cycle technology actually does pretty well in such a scenario as well. And then materials, that sector fund is also really, really interesting giving this. And then obviously mining. You know, we've seen gold through the roof again today, but, but also through, through the last weeks, probably in, in anticipation of tariffs, right, we've seen physical gold being moved right, left and center to the US So people are simply bringing their physical gold back to home in anticipation of, of gold being tariffed of some at some point. That's a really, really clear sign to me that the margins will pick up for miners since the spread between the production price and the selling prices is now increasing again. Um, so, you know, I'm, I'm almost perma against buying miners, but I think there's a decent window of opportunity right now.
- [15:34]
A
You mentioned financials, Andreas. I just want to show you this, this headline from Reuters, I think it is that the newly installed head of the US Consumer Financial Protection Bureau has instructed all activities to be to be suspended. So the entire agency is being shut down. It seems like the Trump government is trying to, to not only deregulate, but completely deregulate. I mean, burn all regulation to the ground on the financial sector. I don't know if I'm reading too much into this, but is that a trend and what.
- [16:04]
B
So I mean, that should be positive even we're based in the European Union. The mothership of regulation, basically. And even here we're starting to talk about cutting red tape for banks, especially as a response to everything that's ongoing in the US now. So I think this is a global trend. Financials have done really well in equity markets over the past month. Even European banks are starting to look pretty solid. Yeah, Feels weird to say so, but, you know, after being caught in, in, in the abyss for like 10 years in a row, we're starting to see some decent returns there. So this is the wild west in a positive way. Credit growth, more loans. Look at the consumer loan data from December. It's absolutely on a tier and I think it's driven by expectations of Trump deregulating everything or maybe just abolishing everything. Right. Just do business. Go ahead and do business.
- [17:06]
A
I couldn't care less, Right. If we have a 2008 scenario in five years. He doesn't care. No, exactly. That's not his problem. Okay, I'll just pick up a few questions before we get to look at the week ahead here. Ralph is basically summing up. Political risk is weighing down what should be a straight bull market.
- [17:23]
B
Yeah, yeah, yeah. I think that's very fair assessment here.
- [17:26]
A
So let's grab Ban, Ban. I'm sorry, asking because oil was, was, was also flagged with quite a big spread in our chart just before. Is there any reason why oil is so cheap at the moment? Is that a long term trend? What do you see for oil?
- [17:46]
B
So to me that's mostly a supply story more than a demand story. The demand is picking up without a doubt in oil space. So we still have a lot of idle capacity out there and currently it seems like a competition to increase supply. And Trump is trying to increase supply from the U.S. he's urging Japan, India, you name it, to buy U.S. energy. Obviously it means that other countries will have to buy non US energy by the end of the day. But, but anyway there's, there's a supply competition now. Including Saudi Arabia, the biggest supplier, right?
- [18:29]
A
Yes.
- [18:30]
B
Or, or at least the typical biggest supplier because they're currently like, they're struggling with their market share and I don't think they'll accept that over time.
- [18:39]
A
No, no, no. And the only way to, to recover those market shares is obviously to produce more and so on because at the end of the day they, they have the lowest costs simply of pumping of the oil. So they have the advantage there. But it's got to come at a, at a short term cost to their budget, of course. So there's a big dilemma for them. I think that's absolutely the trend. I think that's why the chart we showed before, we can just bring it up again on, on commodities. I'm always a little bit hesitant about oil because it is such a, it's, it's, it's not really a perfect market love so much. What you call that tampering with, with both supply, supply and demand for political reasons, that it's, it's, it's tough to rely solely on that. But, but yeah, absolutely. And as I tweeted about yesterday as well to me, geopolitical risk is fading very, very quickly now. Yes, we have a peace deal in Gaza. The Red Sea is theoretically open for business again, open for transport again. Talks are getting more and more serious about a peace deal in Ukraine. Iranians have been pushing for a new deal with the US for months now. Even Trump is going in that direction. All the fears about an Israel, Iran war must now be silenced completely. We're heading towards a peace deal in Sudan maybe. I think we are. I know things could happen next week. Things could blow up in my head. But we are looking at lower geopolitical risk which should Also push down oil prices obviously. So yeah, let's just focus a little bit on the dollar here. What do you think is the timeline on the dollar weakening? Christian from Christian here.
- [20:17]
B
Okay, I'd like to put up a chart, Nikol, on inflation truflation because our friends over at Truflation, they obviously run daily inflation data as we do here on Real Vision. And the truflation data is, is actually a, a strong outlier now. It's an even stronger signal than we get in our daily collection of price points. But as you can see, the inflation has basically cratered through January and February. So why is that? I think it's related to a couple of things because, you know, I just showed you that food prices on the up also clear in the truflation data by the way. But we're talking about utility costs coming down. So basically everything from pipe gas to electricity and stuff like that on a year over year basis, we're talking about housing costs coming down. We do see some signs of, of shelter costs coming down in, in some of the big cities as well. And those two components are super important for the inflation basket. Remember that housing costs are basically they're 40, 40% of the basket.
- [21:25]
A
Right.
- [21:26]
B
And you know, my expectations for Wednesday for the CPI report, they're also pretty low. I mean, I think there's a decent chance that we can get a soft CPI report. That's exactly the kind of report you need to see for the dollar to start weakening on a trend basis. So far it's been weakening clearly against the Japanese yen, but I think we'll see broader weakness in the dollar versus especially the Western peers after Wednesday. So I think the timeline is, is now more or less against some of the emerging market currencies. I'm a little bit more in doubt basically because of what Trump said on Friday. I don't think we have the chart, Michael, but I, you know, I spent all weekend looking into the details from the World bank on average tariffs applied to, to goods and services across the globe. And this is a very, very long story to get through all of the terrorist data. But what I can say, and you can find all of the details in our report on Real vision is that a couple of the big emerging markets, India, Brazil, Argentina, not so much anymore after Milei started cutting tariffs. But some of those big emerging countries, they have much higher tariffs than what we typically have in the west. And if they're faced with a tit for tat tariffs approach from Trump, it would be a catastrophe for the export out of Emerging markets. But in Europe we would be clapping because we've lost ground to Brazil, to China, to India. Europe is in a sweet spot right now because in a tit for tat scenario, Europe, Europe doesn't apply big tariffs on, on the US in some small niches, yes, but not on an average level.
- [23:20]
A
But, but it, to what extent can, can we, can we deliver the same goods that they can from those countries?
- [23:28]
B
It will take some time, obviously. Right, but, but we're talking about the change, rate of change, basically. So stuff moving back to Europe for economic reasons in case of reciprocal tariffs being implemented. So the bottom line of this approach laid forward by Trump on Friday is that we should actually expect tariffs to come down globally in my opinion, which is a very contrarian take right now. But he's putting pressure on emerging markets. And you know, the Biden approach to this would be yeah, they're emerging economies, we should probably allow them to, to tax us more than what we do the other way around because of relations, because of global alliances and all of that. Trump couldn't care less about that. He's a businessman. And if he implements a tit for tat approach against India, India will have to cut tariffs.
- [24:28]
A
Absolutely.
- [24:29]
B
And I think that will be the response from India. You could even see the Eurozone politicians start talking about cutting tariffs on autos new now. And I mean maybe we'll end up with on average lower tariffs globally because of the pressure he applies to, to his counterparts.
- [24:47]
A
Because it's more important for people to sell stuff to the US is their ability to buy cheap. Yes, very, very interesting take Andreas. I don't think you hear, you hear that a lot out there. Just sum up before we dive into a question or two more. We have a whole article out every week we publish an article called the Week at a Glance where we preview the major numbers, releases, etc should we do the CPI number. Here's our expectation for the entire basket. Just to give you an overview of the. Or look into the level of detail here. I don't know if you can even see that on the, on the street. Anyway, so our headline expectation 0.25percent slightly lower than the market consensus.
- [25:30]
B
Yes, and that is the important takeaway, especially for energy. It's low for shelter costs were probably lower than the market expectations. And then you will have some price declines in cars to look forward to on Wednesday. We obviously already seen them if you bought a contrast genuine. But the overall vibe is a pretty soft report and you know, this is mostly good news. Bond yields will likely come down the dollar will sell off and we'll probably get a positive response from risk markets if I'm right. So the, the only caveat when you lay out such a detailed forecast is that the, you know, it's only a matter of how wrong you are. Right. You, you will never be 100% accurate. But yeah, take a look at it and pray that I'm right at least.
- [26:21]
A
This is not Captain Hindsight. This is no we're talking about. And you can make sure of. You can see previews of the small businesses survey, the retail sales, etc. Speaking of car sales, Andreas, in January, is this the first January in how many years that you haven't bought a new car? I just came to think of that.
- [26:39]
B
That's true.
- [26:39]
A
It's usually a January thing for you. New Year, new car.
- [26:42]
B
Yes, thanks for reminding me. Yeah, it actually makes, it makes me a little sad, but maybe it's a sign of something bigger. That's why the prices are dropping. Not in the market anymore.
- [26:56]
A
Interesting, interesting. Okay, let's just grab one or two final questions here. You mentioned that Euro and Chinese stocks are going up. Is that a result of recent liquidity injections in those geographies?
- [27:08]
B
Yeah. At least for China, there's some merit to that view. For Europe, less so. So I think the European bull case has been mostly a matter of investors assessing the risk picture related to these tariffs. And as I said, currently with tariffs being implemented on China, the net winner of that is Europe because we've lost market shares. And I say we as a, as a European, we've lost market shares to China since the pandemic. We've lost market shares to India, we've lost market shares to Mexico and Brazil. There's on the margin, a rate of change moving in the direction of Europe due to these tariffs right now could obviously change if Trump changes his mind. But for now, Europe is in a sweet spot. And Europe is not particularly expensive if you look at it from a multiples perspective.
- [28:05]
A
So to sum it up, Andreas, you're looking at the mining sector, you're looking at banks, you're looking at Europe. It's tough to find the European mining, but there are European mining companies anyway. Active approach.
- [28:16]
B
We don't do a lot of mining here. A little bit in Sweden.
- [28:18]
A
Yeah, that's not very much. European banks.
- [28:21]
B
Yeah, they look good.
- [28:22]
A
Interesting.
- [28:25]
B
Feels odd to say so, but we.
- [28:26]
A
Look at any other final points of recommendation, Andreas?
- [28:31]
B
No. I think you should look forward to this inflation report. If I'm right that it will be soft if you look at CTA data, et cetera, it seems like a lot of people are still stuck with the view that we need interest rates to be higher for longer. I think the inflation report on Wednesday will alter that view on a trend basis, basically. So it's big news.
- [28:53]
A
Very interesting. We will obviously keep track of that. Maybe on Monday we should do a bit of a review to see how we've done on those. Those predictions sometimes may be good. Sometimes maybe. Obviously.
- [29:03]
B
Yeah.
- [29:04]
A
Yeah.
- [29:04]
B
And then if. If I'm wrong about Wednesday, I'll obviously have a good story to tell on one day on why that was.
- [29:10]
A
Then you'll have to buy a car. I think that sums it up. Okay. Interest. Great stuff. We covered both Kanye, inflation, small businesses, everything. Remember to check out our research and our publications on Real Vision with the Pro macro subscription. We have a couple of shows coming up. I have a great interview starting up, a bit more geopolitical coverage. You have a State of the Union that was postponed this week, Friday. So be sure to check all that out on Real Vision. And if nothing else, we'll see you next week.