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New week,
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Big moves.
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You ready? Andreas on the data maker on the floor. Turn the headline into trade. You can know from yields to inflation, every chart, every trend. Get the story, get this set up. From the open to the end. They try to be as actionable and as honest as possible. But keep in mind that their predictions might be sometimes maybe good, sometimes maybe good. Sometimes maybe sometimes maybe.
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Summertime, it may be good. Summertime it may be.
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It's Macro Mondays. Big picture, Clear Play, Stock bonds, fx, crypto all the way. Get context Strategy right now on your screen. Macro Mondays. Level up your week.
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Hey guys, and welcome back to Macro Monday. I'm Andrea Stino and I'm flying solo once again today as Mikkel is still enjoying that Italian food and wine. We have a great show for you today and we'll basically answer the question that matters the most for markets right now. Is the oil still flowing despite the hiccups that we've seen in the negotiations between Iran and the US over the weekend. But before we get started From Connect to Alpha 2 Pro, we've basically dropped our prices to their lowest levels ever. Here at Real Vision, the setup is once in a lifetime. That's why we're slashing prices so you don't miss out, so you can go to realvision.com pricing to secure your future today. And of course to complement all of that, we have our three flagship reports here from Steno Research with our portfolio updates and more for the pro tier each and every week. And I can tell you that we are on, on an absolute role at the moment. So yeah, it's probably worth every penny if you buy a Pro subscription at least. I'm a very, very happy guy today and I'll get back to why to watch the end of this show. Before we get to the micro portfolio ideas, let's have a look at the situation in the straight of Hormuz. I think it was on Sunday Iran suddenly told the world media outlets that they were planning on leaving the negotiations due to the hostilities between Israel and Hezbollah in Lebanon. And as far as we know, live as I'm speaking here, the negotiations are still ongoing. We've actually had pretty decent news flow out of the negotiations today, but it's still unlikely that the situation will improve in a straight line from here. Remember that it's less than a week ago that we got the signing of this memorandum of understanding between the two parties and yet a few days after that we suddenly had the Iranian side out saying that they would close the straight of a move again. So maybe that's a good place to start. Is the Strait of a Move actually closed or is it open? Let's have a look at the flow data that we can actually confirm on page five. So after the signing of the Memorandum mid last week, we had a couple of very solid flow days. As you can see from the spike here on the chart of vessels crossings in the Strait of Hormuz, we're still pretty far from normalized levels pre war. But as far as I can count and also confirmed by the US administration, we had oil flowing at an extent that was pretty close to pre war levels during Friday and Saturday. Then on Sunday we had these hiccups in the negotiations and only one major oil cargo left the region with Saudi Arabian oil. So maybe three, three and a half million barrels left the region on Sunday. Today, still no confirmed news about the flow out of the region, but the oil is at least partially flowing and the strait is partially open. I think that's the fair assumption as we speak and remember, which is basically a testimony to the thesis that we laid out during April and May where we lectured right about every oil pond did on Earth. There is also a flow that is unaccounted for in this official data. We had a flow out of Abu Dhabi to, among other places, the US during May for example, and none of it was confirmed in the official data. But we had more oil coming out of the region than what was reported. And as I said through those months, both sides basically had an incentive to keep that as a secret to ensure that their leverage in the negotiations was was kept intact. Looking at the current development in oil prices and byproducts on page six, a good question to ask right now is obviously how much of a war premium do we actually have left? And to start with the dated oil market in dark blue here, well we have, I'd say around 25% worth of war premium left in the oil price. So we're still above pre war levels, but not by a lot. And as you can see, basically since early April it's been one way traffic lower in the oil price. And subsequently we've seen a one way traffic lower in all of the byproducts as well. Jet fuel for example, in red here, the price in Singapore is almost halved since its peak in early April. So by all means we've basically flipped from a regime where energy prices went up in a straight line to a regime where they're coming down fast, even though we're not fully back to pre war levels. But actually in Some special cases we are even back below pre war levels. Take the example of the urea in the US Gulf in light blue here as one of the fertilizer products we're actually trading below the levels that we saw pre war, which contrasts the alarmism that we saw from a lot of energy pundits during the first weeks of the war where everything from a famine to, to a shortage of fertilizers was discussed. And I mean, I simply think that it is safe to say now that we can discard those worries. Having said that, would I short oil here? I would probably spend my mental bandwidth elsewhere. We're very close to an all time record high in oil shorts in futures. So I mean this very clear bear case for oil with the reopening of the strait and all of that is pretty well telegraphed by now. It was a great risk reward a couple of months ago, probably not the best risk reward anymore. And therefore I would probably use my mental bandwidth discussing the second order effects in other asset classes now, rather than the direct impact on oil, for example. So the macro backdrop as a consequence of this landslide in energy prices has changed quite dramatically. And that's maybe the main message to you guys today. If we look at page four, we run this live data at nowcastiq, my nowcasting company that you also get access to on an ad hoc basis here at Real Vision. And the big game changer since I'd say the first week of May roughly is that inflation has rolled over. As you can see, the axis here kind of tells you whether to expect inflation to accelerate or de accelerate. And we're currently disinflating across the basket. Actually, it's not just an energy story. We do see very, very benign price developments also outside of energy, for example, core goods are rolling over as well in our data. We're also talking about pretty benign developments in everything related to housing. So when will this turning tide and inflation actually impact for example bonds or for example metals markets? Again, I think that's basically the next story to consider here. Why are energy prices falling without rates falling? I think that's a key question to ask and if anything I'd argue that interest rates are probably more linked currently to the very hawkish rhetoric that we've received from many of the big central banks on the back of this energy price shock. So for example, the European Central bank, they hiked interest rates and they also forward guided towards more interest rate hikes. And it's not like they've really changed their tune despite this landslide and energy Prices. The same goes to some extent for the Federal Reserve. I mean, they, they up their projections a lot for inflation this year. They don't really see a big respite coming despite the opening of the Strait of Hormuz. So they basically, in their new predictions, they basically marked to market the inflation forecast through the latest known inflation print, more or less. So I, I wrote last week that I would bet my house, my car, even my wife, but not my kids. A lot of people commented on that. On the under of that inflation forecast from the Federal Reserve, I think it's even more safe to bet on the under of the inflation forecast of the European Central Bank. Remember that for the third quarter they have in their mild inflation scenario an oil price of $88 per barrel. Sorry, that is a lot higher than today's levels and it's in their mild forecast. So in all aspects, we're talking about a turning tide in inflation relative to expectations and especially relative to the expectations of central banks. Having said that, as you can see from the light blue line, we've also entered the most sideways growth environment here compared to the acceleration that we saw earlier this year. And therefore, I think the main driver of assets here is probably going to be the green line, which is the liquidity channel. The liquidity channel is doing well still and we're talking about a meaningful addition to liquidity also over the coming four to five weeks as we see these tariffs being paid back to Corpus. And therefore, when looking at the liquidity picture, I'm of the view that we have a fairly benign liquidity development upcoming all the way until maybe the first week of August while inflation is coming down and growth is sort of trending sideways. All in all, I think that should be good news for multiples. I also think it is at least partially good news for the front end of the yield curve. So I would be in favor of receiving interest rates here. And in terms of the broader equity market here, I guess this could also lead to at least a slight rotation towards more cyclical names, for example, within industrials and other such cyclical sectors in terms of the AI trade, which has obviously done incredibly well. We're awaiting the results from Micron on Wednesday, but we already got some, I'd say, early hints around the trends within the memory space on page seven from South Korea earlier today, the first 20 days of the month were once again solid for exports in South Korea. We're talking about an acceleration of 60, 65% year over year. Again, that is an acceleration versus May. And yeah, we're basically still seeing an accelerating demand picture. Spot prices for DRAM are still on the rise and if you look at the expectations for Micron on Wednesday, we're talking about bottom line, that probably improves roughly 1000% versus a year ago. So it's that kind of growth that we're talking about in this space. And my working assumption is that the market is too pessimistic ahead of these numbers from Micron. So even though it sounds awkward to say that stocks that are up I don't know how many X since a year ago, Micron centis et cetera, are still worth a buy, I actually think they are given that all of the underlying parameters are still accelerating, the exports from South Korea are accelerating, the price of DRAM is accelerating and so on and so forth. So it still looks very, very attract attractive to remain in this bet. If you want all of the details around how our pattern recognition model from Nowcast IQ predicts returns in this new inflation rolling over environment, you can go to Real Vision and sign up for one of the discount deals to get access to those conclusions. You can hear that I'm a smoker today, right? Kidding aside, let's move to the laugh of the week because we've had some major news out of the UK this morning. Even though Trump kind of hinted so to say the least. On Sunday by his Truth Social account, he basically told us that Kirstama would resign. I don't think I've ever seen another head of state telling us that another head of state will resign the day after, but that was what happened yesterday. And we'll bring you the live reaction to Keir Starmer's statement from the Cross Arms Pop here. I hope my producer can play the sound bite from X that I found earlier has been about putting the country I love first. That is why I will resign as leader of the Labour Party. I have spoken to His Majesty the King this morning to inform him of my decision has been about putting the There we go. Obviously that was and manipulated little sound bite there. Having said that, let's, let's have a look at the fundamentals in the UK now that Keir Starmer is going to pass on the baton. We don't know as of yet who's going to succeed him. I think more or less everyone expects Andy Burnham to be the next Prime Minister in the uk. But take for example a look at the five year real rate differential between the US and the UK here versus the sterling foreign exchange rate in Michigan dollar terms here. The cable I mean I don't think we've ever seen such a big spread. And you could argue that this is a Keir Starmer premium. You could also argue that it's like a post Brexit premium. No matter what Sterling assets have underperformed during Kama's rail. I don't think there is any way other than that of explaining it. And therefore if the new Prime Minister takes office and sort of accepts the reality, I actually think that this could be pretty decent timing to buy into some of the under owned, sorry, sterling assets here. And yeah, the sterling trade in itself could be pretty interesting. Maybe guilds could also be interesting in relative terms if the new Prime Minister accepts sort of the fiscal reality that he or her is going to inherit from Keir Starmer. I don't have strong views on the next PM as of yet, but we'll obviously keep you posted in our geopolitical updates on the topic. Later this week Mikkel, my colleague will return and will provide his takes on the situation in the UK if you're interested. Finally, I'd like to point your attention to a couple of micro trades. We're running this portfolio at the pro tier here at Real Vision. It's been doing great and pre market Today we received some news from the company that was once called Mind Medicine, now Definium Therapeutics. It's an alt health company working with LSD and Psilocybin products as treatments for everything from depression disorder to anxiety disorder and stuff like that. So the total addressable market is huge. The existing products related to these disorders are pretty weak and the news that they released earlier today related to their LSD like product and the phase three results on using that product for depression treatments and the the results are very, very convincing in my opinion. This is obviously an area that has been in a focus for rfk in the US as well and we're seeing definium therapeutics up approximately 55% today as we speak. This has been one of the biggest positions at all in our pro portfolio and I know a lot of members are pretty happy today about the the developments here. So am I. That was why I hinted earlier that I am in a very very good mood today. This has also personally led to a pretty decent wealth increase. We still await results on the psilocybin stuff. We should probably expect the results just after the summer, maybe in August from from Definium Therapeutics, so there's still more in the pipeline that could reprice this stock higher. So yeah, it's one of the cases that we've early on and that we've accumulated over the past year or two in our pro portfolio with great results. And I think I'm up yeah, several X now on on this case. Having said that, on the flip side, we've seen, you know, a lot of discussions around MicroStrategy over the past week and let me just chip in briefly. A lot of the focus is centered around the STRC instrument, which is basically a prefshare that Michael Saylor and his team designed with ChatGPT by the way, he openly admitted to that. And on top of that they've obviously used that instrument to raise cash to buy Bitcoin. That STRC instrument traded aggressively lower over the past week. It has rebounded a little bit, but it led to the question that I've received that question a lot of times, is microstrategy an issue for the bitcoin space? And two things as of now. First, I don't think there are any signs whatsoever of an imminent pressure on the balance sheet for Microstrategy. The next major refinancing date is in 2028. So I mean they don't have any issues meeting their obligations, say this year or next. No issues whatsoever. What worries me still is that this is a levered model that in case of a very hostile market environment when you need to refinance could lead to a very slippery slope. Because if you need to refinance these instruments during very hostile market environments where the capital market is basically closed, Saylor and his team would have to sell Bitcoin to meet those obligations. While that is not necessarily an issue from a liquidity management perspective, it would be an issue for the bitcoin space and it would be an issue for the model itself because it's kind of self feeding. If you need to sell what you own to meet your obligations, right. You would rather have the opposite loop. And therefore I've always said about this model of Michael Saylor that it very much depends on him getting the timing of cycles right. Because if you need to refinance during very hostile market environments, this model will quickly lead to a self feeding negative feedback loop while it is also a self feeding positive feedback loop in the other direction. So it amplifies the volatility of the space. And I don't think that's preferable to be honest. But having said that, those that are currently using this as, you know, the main reason to remain bearish on Bitcoin, I think those worries are misguided since there are no reasons to expect Michael saylor and his team to sell Bitcoin to meet the obligations during this year and next. You can just take a simple look at the refi calendar for MicroStrategy and see that it's not really worryful for the very immediate near term. I think I will leave it at that. The inflation tide has turned. The macro regime has shifted decisively towards inflation down. Now it is yet to be appreciated by central banks and therefore I think from a macro perspective you should shift your mental bandwidth from trading energy products to trading some of the buy stories of that inflation regime shift. And if you want all of the details on how we traded in our portfolio that is on an absolute tear, you can go to realvision.com pricing and pick up one of your discount offers to gain access to our research. Thank you very much for tuning in to this week's Macro Monday. We'll be back both Mikkel and I next Monday and remember that we have a load of great shows coming up this week here at Real Vision that you can enjoy. Take care out there.