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- [00:00]
A
Sometimes may be good. Summertime it may be. It's Mac. Stocks, bonds, fx, crypto on the way. Get context strategy right now on your screen. Macro Mondays level up your week. Oh yeah. Hello there.
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B
Welcome to Real Vision. Welcome to Macro Monday. My name is Migl Rosenwald. I'm your usual host these Mondays. Finally back after a few weeks in sunny Italy and I'm joined as usual by my co host Andreas. Welcome to the show, Andreas.
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A
Thanks Michael. Finally the temperatures have dropped a bit here in Copenhagen after I think a new record high in temperatures on Saturday. So it was a nasty weekend for us without ACS to be honest.
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B
But all time highs also in temperature recordings in Denmark, Andreas. Not the all time highs we were looking for maybe, but it's the ones we had. We have a great show for you today. We're going to answering some of the most red hot questions out there in markets. Are we back to a war in Hormuz? Has the dollar topped? Will the dollar top? And what is the situation in markets as we look into a week of very, very interesting both number prints but also a speech from Kevin Walsh that we're going to preview a little bit here and give you a sense of where we are on markets. Before we get started though, remember this show is part of Real Vision. We have dropped our prices to the lowest levels ever on Real Vision. As part of our summer campaign we are building a new Real Vision. It's very much community driven. You get so much value from Real Vision, whether it's on the connect for pro tier. So if you've been lurking around watching our free show Macro Monday, maybe wanting to test out the waters at Real Vision, now is the time to go check out realvision.com pricing to secure your future today. My opinion, that's some very, very good offers. I was beginning to wonder, Andrea, if these price cuts had impacted our now casting and brought the inflation measure down so much. Maybe that was the cause, but I'm not sure that Real Vision is big enough to draw that down single handedly even though there are very, very great discounts. Okay, enough salesmanship here, Andreas. Remember guys, this is our free show where we give you a sneak peek into the macro and geopolitical research that we publish on Real Vision. We try to be as actionable and concrete as possible as we dive around the world of global macro. But please do remember that our opinions and analysis might be Summertime is maybe good.
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A
Summertime it may be shit.
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B
Absolutely. Andreas, I have to say you nailed it last week with the Micron Quarterly Reports. Was that your best call this month as we are heading towards the end of June or what's the one you've been most proud of?
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A
Oh, it was a good call but we've had a pretty volatile week and month in memory stocks. Overall it seems like there's kind of an angst that we're approaching a top again which is in my opinion unsubstantiated. We can get back to that. But beneath the hood of our pro portfolio we also had a huge multi backer development in one of our biotech healthcare alt health stocks. Probably the first breakthrough in depression drugs in 50 years. And I'll leave that there as a cliffhanger. But yeah, it has, it has moved my wealth in the positive direction, let me put it like that. And hopefully also some of our members.
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B
That's what we're here for. Andreas, at the end of the day. So that was the sometimes maybe good, what was sometimes maybe bad in the month of June.
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A
Andreas, you know our debt data has been fairly vocal that dollar inflation is coming down, that everything related to the straight of a moves and that energy spike and all that has come to an end. But it's not like the market is listening really, if you know what I mean. I guess that's kind of been the flip side. We do have some positions in our portfolio very sensitive to the dollar and the dollar, just before we went on air here the dollar made a new top versus the Japanese yen. It's actually printing at the highest level since 1986 before I was born today. So the dollar has been stronger than I had anticipated. That's probably been the flip side.
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B
Interesting address and we'll get right back to that in a moment and a bit of outlook on that. But overall a very, very interesting month and obviously we're heading into an equally interesting June, July. Pause a bit on one of the ongoing developments that you mentioned, the situation in Horus, because I thought things were mostly done with a memorandum of understanding, but apparently we still have a weekend war going on where there is some fighting every weekend and then we get our Sunday Hopium and everything is good again. So we had obviously Iran is the way I see it, trying to maximize their leverage, maximize their outcome of this war. They're trying to establish some sort of control over the Strait of Hormuz and enabling them to levy sound tolls essentially to some degree. And the US is not having that. They've had it with the humiliations essentially of Donald Trump here as they see it and hit back at the Iranians and then on Sunday as usual, Axios got the news. I don't know why it's always Axios, but it is that attacks have been halted and the talks have back on and address. Perhaps the most important thing to zoom in on here, to cut through all the noise is that some ships are still going through. We're not back to pre war levels in the Strait of Hormuz. We might never be or might never come there.
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A
But are you worried about this from
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a market investor perspective or are you confident? As long as ships are floating through
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A
so everyone's short oil now if you look at the speculators data. So we obviously cannot cope with a major hiccup. Having said that, the price action is still very benign in oil also in physical markets and the oil has been flowing pretty decently since the signing of the Memorandum of Understanding. Sure it's not like we're back to pre war levels in terms of the transits, but we will never get back to pre war levels. Just remember that. I mean the bypassing is very true and the bypassing is continuing. We just got another reason to continue to bypass the straight of a move this weekend. Right. I mean on top of it, obviously some flows are going through that we do not account for in this official data here. And I think the bigger discussion here is whether you know, is the Omani transit route used or the Iranian transit route because you know, pre war it wasn't really separated between the two countries but now you basically have two shipping lanes and the Americans, they've, they've done a lot to protect that Omani shipping lane. Also during this weekend, right. We've seen outright, you know, escorts, whatever you call it, of some of the ships out of, of the Strait of Hormuz. And the Iranians obviously cannot live with that either. But I think you said it a month ago or so Mikul, that they've played this card now, the Iranians. It's not like we cannot return to normal and pretend that this war has never happened. Right. So of course a lot of the stakeholders in the region, they've, they're also trying to position themselves for this, you know, post straight of a moves world. And yeah, if we, unless the strike is completely closed again, I don't think we have a major issue here because we, we've actually managed to cope without the strike for a long while and we'll also manage to cope with a partial straight for a while in my opinion, as long as it doesn't close again.
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B
Interesting address. So let's Just leave it at that. We have another couple of very interesting geopolitical developments, especially in the EU China trade relations. I'll be covering that in my Drill article later this week on Real Vision. So let's leave it at that and return Andres to discussing the US Dollar. You published your weekly flagship article this morning morning on Is everyone wrong on the US Dollar arguing first of all of the technical outbreak of the dollar obviously also the relation to Kevin Warsh's remarks. Maybe let's just roll back a bit and dress what caused this rally in the dollar that we've seen over the past weeks.
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A
So if we turn back time to Kevin wars first press conference a few weeks back, he had to take stage with a new set of projections, a new set of dot plots from the members of the committee. And if you look at it statistically, they've basically opt every single forecast in the direction of a more hawkish outcome, rates up while they they seem more scared of inflation. Right. And all of this happened amidst, first of all the drawdown that we've seen in inflation in our data for almost two months now, but also as the market pricing of inflation fell apart. And I'd like to show a chart on that exact divergence on page 13. Because typically central banks, and especially since
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COVID
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they've been very correlated to the inflation market because inflation has been the main worry. It's been the thing that they've used as their guiding star for the policy rates and so on and so forth. I cannot recall a disconnect this huge between the rhetoric and what markets are telling you on inflation. So the rhetoric is getting more and more hawkish and inflation is coming down. So that disconnect obviously leads to real rates coming higher. I mean interest rates adjusted for expectations for future inflation, which is an environment that typically leads to a strong dollar. I think this is a classic example of what I call the generals always fight the last war syndrome that most of the members of the committee, the last crisis that they had to deal with was an inflation crisis in 2122 where they got things wrong. They underestimated inflation. So I think most members would now rather overestimate it than underestimated the inflation picture because they got it wrong the other way around a few years back. And I think this chart tells you exactly that. It's pretty obvious that we had an inflation spike in April and May. The big question is whether it is something that we should worry about now that the oil price is basically back to square one. I sincerely doubt that there is a more lasting inflation picture here. Our data is basically screaming that it is transitory. Having said that, it's not only the Fed that did this pivot alongside falling inflation. We did see the same to some extent in the Eurozone, we did see the same to some extent in Australia, et cetera. The big difference here is, and that's probably why the dollar is so strong, is that coming into the Iran war, coming into the new chairmanship, we had expectations of rate cuts priced in in the US So it's obviously been a big change of the scenery from cuts to hikes over the past month or so. Is this a policy mistake? Not yet, because they haven't hiked interest rates, but it's at least a forecasting mistake. And I guess your next question is when will they undo this damage? And you know, I've, I've spent a chance this week. Yeah, they already have a chance this week. So a few things. Miko, remember the Kevin Warsh, one of the first, first things he did, he, he decided to cut down the number of words in the press release from the fomc. He, he was very vocal about the FOMC having to take guidance for markets and not vice versa. Now, which is basically one of Trump has been very vocal on that for a couple of years as well. So where does that leave us when inflation markets are coming down rapidly? Does that tell Kevin Warsh that he needs to respond to that? At least that would be my reading of things. But the market is not, it's not like the market has made the conclusion, okay, now inflation is falling. That will lead Kevin wars to do X, Y and Z. So I think that's the big test here. Will he admit to inflation markets already? You know, sending him a signal. Yeah. Over the two weeks here because it is admittedly probably the fastest pivot from a pivot ever. If he manages to u turn again this week and interest, to me, there's
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B
an even bigger pivot here. Speaking of pivots, because I thought, remember back 912 months, Donald Trump and Jay Powell walking around in hard hats. It was a matter of is he going to jail him or shoot him. We all expected Donald Trump to put in a puppet. We all expected Donald Trump to put in someone who would just hammer down interest rates, no matter the data. I'm paraphrasing a bit here. That's not what we have. It seems like there's no political pressure right now.
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A
No. At least they'll allow him some time before they ramp up the pressure. So Walsh will appear On a panel, I think it's on Wednesday in Portugal, if I'm not mistaken. This ECB forum that they typically host before the summer vacation, remember that. You know, it's only us Danes that are weird enough to go on vacation now and most of you will wait another month. Right. So having said that, Miguel, it is typically a very, very important conference, this one also for the European Central Bank. So, you know, our data is as clear as it can get. I mean, on inflation, the inflation signal is incredibly strong. The question is just when will those in power admit to it? And you could of course argue that it would make more sense for them to wait until you have the actual confirmation. Right. The actual numbers from Europe we got the Spanish inflation report, not. I'm going into details on that one for June. Remember that the inflation numbers in the Eurozone, they're published at month end and in the US they're published roughly two weeks later. And the core inflation in Spain was actually pretty soft. Also, when you look at the headline inflation, I think we overall have a pretty soft surprise coming in the Eurozone. So again, confirmation that our data is probably right, but you need to be a little bit patient here because especially given this fighting the last war syndrome, I'd argue that it makes sense for them to wait until they actually have some confirmation that inflation is coming down
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B
again.
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It's not like Kevin Warsh has told us, okay, well, we're going to hike the hell out of this market. Right. They just made a forecasting pivot and then, yeah, let's see.
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At least he's not fighting a war with the President, like unlike his president. That was my point here, which is quite remarkable that it seems like he's been giving sort of a honeymoon period or, you know, the honeymoon period Trump has created for him with the Iran war that has created this impass of. Of murky data. So very, very interesting address. We have a. Aside from washing speed, we have a couple of very interesting numbers coming up. And dress both the manufacturing, pmi, we have job numbers. What do you expect this. Maybe let's start with the job numbers. What do you expect this week?
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A
Weaker than the last couple of months. So remember exactly a month ago, we were one of the very few to get this right. We had a pretty material job creation in leisure and hospitality, obviously related to hiring for, you know, everything from merch shops to, yeah. Draw beer servants and whatever you have for the World Cup. Right. So of course there's been a little bit of hiring within that space still in June for for the World cup, but most of it should be in the price for, for, for the job creation. And then overall, if you look at our tax indicators, which I typically like to consult ahead of job reports, we've actually seen a deacceleration in June also during the sample week. So my best guess is that it will be softer than last month. That is pretty well telegraphed. But I, I wouldn't be surprised to see it below 100k which is below consensus. So again, here most, most people, and probably also most of the members of the Federal Reserve Committee concluded that the job market was re. Accelerating when they met a few weeks back. And I think that was, that is a decently fair conclusion. But again, it looked arbitrarily strong, let me put it like that, because of the World Cup. And it is something that's very difficult to adjust away because you don't really have any data to compare it with. How would you ceasely adjust inflation or job creation for a World Cup? I don't think it's possible.
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No.
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So it's just something to consider. My best guess right now is that both jobs and inflation will look softer than what they have in their forecast for the next few months here.
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Yeah. Again, underscoring the scenario we've been talking about. Okay, interest, you're telling me that we need some patience, we need some better numbers
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to get worse numbers you could
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argue, or worse numbers you could argue that to get us off the line out of the Fed. You're heading on vacation next week in dress. I know you still like to be connected. You're still online, you still like to post, you'll probably even join the show if I know you're right. We'll see about that. But Andreas, how do you. For the listeners out there who are maybe heading into vacation in the coming weeks, maybe in a month from now, it doesn't matter. How do you prepare for your portfolio? Do you take the gas off the, your foot off the gas a little bit or what do you do?
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So this is one of. I get this question every single summer, especially for.
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I might have asked you this last year as well.
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Yeah, you probably did. But I also get it from various institutional counterparts and so on and so forth. Because the interesting thing is that positioning today will likely be somewhat reversed into the vacation season. So whether that's positive or negative for the market depends on the positioning coming into the vacation season. Because what you typically see is that you lower your leverage, you lower your notionals a little bit on average into the vacation season and When I say the vacation season, I think we're maybe tolling the third week of July onwards. Right. So this year it could be that we see a move lower in the dollar into the vacation season. It's a very popular trade to be long dollar right now. It could be that we see a reversal of some of the shorts in software and metals and some of those sectors in the equity space. It could be that it takes a bit of steam out of the semiconductor trade because that's a very popular trade obviously. And yeah, it could be that we see some buying of the Japanese yen, probably the most unpopular trade at all.
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Right.
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So I, I think you need to look at sort of the scoreboard of positioning and account for the possibility that you see some positioning squaring ahead of the application season there. You still have a couple of weeks left before it really starts. Right. But that's, that's typically my go to, to look at the positioning ahead of the vacation season. I've always designed my vacation so that I go on vacation before everyone else and I actually like that edge because it gives me the opportunity to be at the desk when all of this stuff happens. Of course I'll, you know, I'll be on top of everything related to the portfolio when I'm away. I'm that kind of guy. And you know, I have real money invested in this. So, you know, I, I don't sleep well if I do not track it. So I'll continue to do that, of course.
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B
Absolutely. Okay, Andreas, we, we've had a few questions on some of the fundamentals, fundamental indicators in the AI trade and we just have time to cover a few of those. You cover them in your Stenos Signals article as well, Andreas. Both the Token Expenditure index, which we used a lot, and also the, the, the, the DRAM spot price. Still no signs of an AI slowdown as as far as I can have told Andre, no.
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And, and I mean we had a lot of discussions on whether to see this drawdown in the Token Expenditure Index as a, a flag overall for this trade. And as we showcased in last week's editorial, it was more of a story of the marginal user moving to Chinese open source models. So remember that this is the average price paid for a million tokens. So if the volume goes up and that volume to a larger extent than the month prior to, goes to the Chinese open source model, this average will drop even though the volume is going up. And that's basically been the case in June, the volume is still going up. I guess you can you can argue that it's been clearly clear if you look at a lot of other live indicators, such as, you know, the rental price of Blackwells, for example, you, you haven't really seen the same drawdown there. You haven't seen the drawdown in memory pricing. So if we move to the memory pricing, let me just highlight that I had a few things. I think I said that last week on the show here as well, that the Micron quarterly report, by the way, covering the purple area here between March and May, it wasn't as strong August quarter for the underlying spot price development. But see what happened since the end of that quarter, right, We've seen another acceleration that's point number one, point number two, and I think I got some confirmation of that is that we, we probably have some sort of a front loading of the whole demand cycle for memory here due to the Iran war, because everyone suddenly got scared that the world would run out of helium gas capacity and stuff like that, maybe during the second half of the year. So I'm watching this spot price development more or less on a daily basis because we all know that everyone's involved in Micron incentives. I've gotten some data from some of the trading platforms here and they are the two most popular retail traits. Right. So, you know, every one of their mother and probably also their dog is involved in this trade, both on the long and the short side. I mean, you can see from the volatility over the past couple of weeks that people are in and out, in and out and out. I mean, but you know, the fundamental, fundamental underlying story is still accelerating. So I, you know, I'm, I'm still all in memory despite this volatility. But I get that if you're, if you're running institutional money, it's getting a little bit more difficult to, to size this because of the volatility. Right. That's, that's, that's kind of the side effect of volatility that you need to run smaller positions, again, get the same outcome. Right. So, yeah, we, we'll have to see how much juice there is left, but. Well, the underlying picture still looks incredible.
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B
Yeah, yeah. And Elon Musk and Tim Cook also talked about it over the week. This is the most massive price jump in everything we've ever seen.
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A
Maybe one comment there, Migo, because I've had a lot of questions on the Chinese competition in the memory space, and I think it was Reuters that laid out a story 2, 3 days ago about Apple asking Trump and his administration for, you know, access to these Chinese memory manufacturers. Currently, it's not allowed for Apple to put a Chinese memory chip in their phone. But yeah, they're currently asking due to the scarcity. Remember, it's because of the scarcity. Those, those memory checkers.
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B
Yeah, they hike prices enormously in their corporate.
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And, and what I wanted to say is that, you know, Apple, for example, they have a pretty decent supply chain secured in China. So I mean, they can obviously use these Chinese supplies in case they, they're allowed to. But this is geopolitical question as well, right? For now, it's not like CMTX and the local Chinese competitors are close to having the same yield on their memory chips as Micron and Hynix, but they're getting there. And you obviously want to stay ahead. Right? So I'm actually not sure what to expect from the Trump administration on this question. If I were to guess right now, I think they'll say no.
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I think so too. I think so too. But it's a very, very delicate balance because you can't have a shortage either, which we are essentially looking into. You have to take action on that because that will begin to affect consumer products. We already saw the price hikes on iPhones and iPads, et cetera. So it is a very, very delicate situation address.
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It is, by the way, a situation that we perfectly forecasted like two or three months ago. We have a little less than a handful of names in our consumer scarcity basket. So we're very thematically driven and we try to look one step ahead every time we get these developments. We were one of the very few to get this whole technology trade right during the Iran war due to this front loading of demand. And in my opinion, the second half of the year is very much about the byproducts of that front loading of the demand for AI semis, because it will impact a lot of things down the supply chain. Consumer electronics, cars, what have you. Because the chip scarcity is very real, it's very live, it's alive.
- [29:38]
B
Absolutely. Andreas, that's all we had for you this week from Macro Mondays at Real Vision. Remember that we are running a big summer campaign at Real Vision. We've dropped our prices to the nose level ever. So if you've been lurking around wanting to join Real Vision, now is the time to do so. Go to realvision.com pricing to join up and get even more of our content. That includes both addresses, weekly Standard signals, Macro piece, my Duplical piece, the Drill, and obviously our portfolio update, which is released every Friday. We also have a bunch of live shows among the contributors, Real Vision. So don't miss out on that. Check out realvish. Com pricing. Thanks to you, Andreas, for joining. Thanks to everyone for listening in. That's macromontage for this week.
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A
We'll be back.