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A
New week,
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B
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.
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C
Sometimes maybe good. Sometimes maybe sometimes maybe Shit sheet. Shit, shit, shit, shit, shit, shit, shit, shit. Sometimes may be good. Summertime, it may be.
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A
It's Macro Mondays. Big picture Clear play. Stocks, bonds, fx, crypto on the way. Get context. Strategy right now on your screen. Macro Mondays. Level up your week.
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D
Hello out there. Welcome to Real Vision. Welcome to Macro Mondays. My name is Mig Rusmal. I'm your host as usual. And as usual, I'm joined by you, Andreas. Welcome to the show.
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B
Thanks, Mikkel. You know, Mikkel, I'm in a very good mood today, despite what happened on Friday, because yesterday we had the most important election of the year. Sorry to the Americans tuning in here, but Florentino Perez was reelected as the president in Real Madrid, which basically means that we'll have Jose Mourinho back, back in charge of Real Madrid from the next season and onwards. And it will be absolute theater. I, I'm, you know, awaiting this as a kid just ahead of the Christmas Eve. So. I mean, as, as a Marista, I'm, I'm. Yeah, I'm very, very upbeat today. I have to say that.
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D
Yeah, I'm. I have a very soft spot for Jose. I'm a bit more skeptical about this, this endeavor. But let's see, let's see how it happens. They, they. They have the material in J.
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B
We.
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D
We haven't talked too much about the World Cup. It's unlike us, but it's. It doesn't get the hype in our neck of the woods, both. First of all because we're not in it. Second of all because it's going to be happening during the night. So we're, we're spoiled as Europeans that most of these events in, in soccer anyway take place during our evenings. Not this time around. But are you stoked for the World cup address more than I am, maybe?
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B
No, no. But we actually do get a chance to talk about the World cup today because of the labor market report on Friday.
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D
That's a good.
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Back to that.
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D
That's a good plug. Yeah, that, that is what I had in mind. So. Absolutely. Andreas, we have a great show for you out there today. Been. We had obviously a bloody, bloody Friday. So we're going to try and cover. Do we panic yet or don't we panic? What's the reaction in markets warranted Try and dive a little bit into the job market report and then address we have to talk a little bit about Iran and and Israel again as things are are heating up or have been heating up over the wind over the weekend. Things moving very, very fast on there. So lots of stuff to to talk about and digest before we get started. Just a few reminders. If you're subscribed to Real Vision's Alpha tier or above, you can tune into Raoul and Julian covering what they see in markets. It's their live show. It's at 11am Eastern, so in 55 minutes essentially you can join that and if you're not a subscriber you can get you have time to subscribe after our show before theirs begins. So it's just a matter of hopping into realvision.com and joining that to see Roland Julian pick apart markets and listen to what they have to say. Of course, to complement that, we have our usual publications address. We're a little bit light the coming two weeks because I'm headed on vacation. I'm still going to be doing Macro Mondays, but I'm going to be taking a bit of a vacation from the drill unless something major happens, which it probably will in Geopolitics. But fear not, we still have the usual Stenos signals flagship report every Monday and then our Friday portfolio update every Friday. So lots of good stuff to look out for if you are a real Vision subscriber. And then remember, as we also saw in the intro video, we're trying to find the soft spot between between five seconds of the intro song and the full version. So let us know what you think about that. Our producers are working very, very hard to find the soft spot there. But as the song always goes, remember that our trade recommendation and ideas might
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C
be Summertime is maybe good. Summertime it may be.
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D
Shit, yeah, Gatubs are not going to the World cup either, Andreas, sadly, I have to say. Okay, Andreas, let's get on with it. Red Friday, I've labeled it here. What on earth happened?
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B
We had a slightly nasty price action already during the Asian session. We had some hiccups in the semiconductor stocks in South Korea. We'd also have some moves in the Japanese yen, et cetera. But what really triggered it was basically the job report early morning US Hours. And I was planning on a pretty casual afternoon, to be honest, because all of our indicators basically suggested that the labor market was doing better than feared. And I probably had one of the most aggressive forecasts for the non farm payrolls of any forecaster. So I had expectations, high expectations of a decent job report, among other things due to the World cup effect. We'll get back to that in a second. But I didn't really plan on the response to that job report because essentially one thing was that we got a good report for the last month, but we also got very substantial upwards revisions to the last one. And it has basically punctured this whole idea that the labor market is weak and that AI is taking all of the jobs and all of that for now. In that sense kind of killed the last narrative that Kevin Walsh could use as his excuse to stay very soft on rates. Right. So I think what happened in a matter of minutes was basically that it got crystal clear to everyone that Kevin Walsh has cornered. I mean he cannot show up in June and say, well, given our mandates we need to have soft rates because inflation is running harder than anticipated and jobs are created at a faster pace than they have anticipated. Right. So from a vanilla bureaucratic perspective, given the two mandates that they have, he'll struggle to find an excuse. Now I'll get back to what he's likely going to say in June here in a second. But if we get the NASDAQ chart on live here, Mikkel, from page five. I just wanted to highlight how bad it was in just a slightly longer context than just Friday last week. It's one of the worst Fridays that we've seen. You know, it's up there probably top 20 or something like that historically. But we've basically just dialed back Nasdaq to where it was say mid to late May. I mean we did roll back a part of that massive rally towards the end of the month. But we also found the support roughly where we should, as you can see around those low levels from the month of May. So we rebound pretty aggressively as we speak here. NASDAQ is up say one and a half, something like that between friends here. So if, if this bottom that we saw mid May holds here, I, I, I think we're, we're still in an uptrend. But having said that, some of these momentum players, not least the CTAs that typically follow the momentum factor in either direction very mechanically, they'll likely struggle to buy from here. So we'll have a more two sided market compared to what we have had in April and May. So this straight lineup in risk assets, it's over. It's not going to happen after this because it's a very technical change of the market structure now that the CTAs cannot buy just because of momentum. And therefore I think we'll have a more selective market for the rest of the month. Easy to say now that this happened, but that's very mechanically what happens. I don't think the cycle is over, but we, we obviously need to remain vigilant here.
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D
You tweeted a bit about this on Friday that we have to see if this develops into a vast shock. It also goes to what you're saying. Let's just try and expand and explain that for some of our viewers. This might be obvious, but, but what is a vast shock and how do we know if we get there?
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B
So in, in simple terms, which also held true when I ran a hedge fund, you do have a risk weighted objective, basically from an investor standpoint, meaning that you can only run x percent of risk in your book. So before Friday, that risk measured by a set of market standards such as implied volatility, the implied fluctuations going forward, and even realized volatility, those measures were very, were very low. Meaning that you can add more to your notion when you're running a portfolio with a risk that is accepted within the limits that you've promised your investors. After what happened on Friday, some of these funds will have to dial back on their risk taking just to comply with these risk measures, since they've probably breached them now that the implied fluctuations are larger. So this is another mechanical thing that happens when you go from a very low volatile environment to something that's more shaky. And it remains to be seen how severe this gets. But we will certainly have some of these levered players on the short side of the trade through June as a consequence of this, simply because they're forced to. And it goes both for these momentum players and these funds that run risk with a clear sort of risk weighted mandate in mind, depending on the volatility that we see in markets. So those are the two factors that I'm worried about from a technical standpoint, but it doesn't exclude that a lot of fundamental players will use this as an opportunity to buy the dip.
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D
Right.
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And I ultimately think that will be mostly guided by the spot pricing of tokens and the spot pricing of hardware. Right. The two exact trends that have led this rally throughout the year. And you know, for now we can, we can conclude on the June and forward outlook in a second because I also want to touch upon the details on the labor market in just a minute, Miguel. But for now, I don't think we do have any evidence at all of these things rolling over. So I see this more as an opportunity to buy, for example, memory stocks than to sell them.
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D
That's great to hear Interest. Let's unwrap the job report a little bit more and gauge whether this market reaction was warranted. We have touched a bit upon it. We have this chart. I hope it's decently visible for people, but essentially the blue dot is the April report, the revised April report, and the green dots, the slightly smaller dots are the May report. So actually the job number for May, a little bit lower than in April, but still much higher than most anticipated.
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B
Andreas? Yeah, this is not a chart that is particularly colorblind friendly. But having said that, a few things to note here. We're running at say, 175k jobs a month or something like that, which is basically 175k jobs more than what you expected coming into the year, more or less. I think the consensus was that if the job market could just flatline, that would be more than enough, since the tide had turned on migration flows and all of that. And this is a job creation that goes far beyond what the economy needs now, given that the migration numbers are so low. Let's just remind people of that, because had this been under Biden, where the border was essentially open, this wouldn't have been a big number, but it's a big number under Trump and therefore the unemployment rate is likely going to drop if we continue at, say, 100, 275k a month. Having said that, the big thing to notice in May is the leisure and hospitality part of it, because if you look at it, it's basically the part of the jobs report that was better than in April, obviously very related to the World Cup. That is the first match in three days in the U.S. i think so.
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D
Yeah.
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So on the 11th. Right. So, of course, that is starting to impact the leisure and hospitality hiring, as these people have likely come on the payroll to some extent already to prepare for what's upcoming. It will probably be even more impacted through June, but I think you can at least account the World cup effect for maybe 50k jobs, something like that,
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this month, maybe in the government bucket as well.
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Yep, absolutely. I wouldn't rule that fully out either. So it looks better than it is and you should expect some of this to be reversed after the World Cup. But it still does not sort of rule out that Kevin Warsh is under a lot of pressure ahead of his first press conference this month. Right. And if I were him, he's been given a pretty clear mandate to keep interest rates low at the very least.
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D
Right.
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And I'm of the view that he probably even had to, at least behind closed doors, promised Trump that he would work very much in favor of the administration's policy on this point. And therefore, I think he will very reluctantly have to sound the alarm a little bit on inflation and jobs growth here. And therefore, Miguel, it, I think the simple way of explaining this is that last time they met, they had an easing bias. The Federal reserve, it is 100% ruled out that he can continue with an easing bias here in June, in my opinion. But the best case is probably that he can convince the committee to say, okay, we can move in either direction now so they keep the sequential progress towards interest rate hikes in place. And that allows him some leeway, in my opinion, because if, if they agree upon a neutral statement, say we could go in either direction, he can of course put emphasis on going lower. So at least for now, I, I actually think he's got a bit of leeway left and I think it's very underappreciated that he's going to use that leeway because again, to my understanding, he is, as far as you know, he is as close to a puppet as we get in Western central banking history and therefore he will be very, very reluctant to sound the alarm on inflation and jobs here. And I actually think if we look forward, central banks never look forward. I actually think there's some light at the end of the tunnel on many of these things and some of it related obviously to what's going on in Iran and oil prices and all of that. But also more broadly speaking, if you look at the forward looking labor market evidence, sure, but the labor market has rebounded. That's kind of enterprise now. We've seen it three months in a row. But the labor market will most likely not improve from here, so we won't get more surprises in that direction, in my view. And all of the forward looking indicators on labor, and remember, we highlighted this very acceleration in the labor market early this year. All of these forward looking indicators have flatlined since. So I think we've come to terms with that now. The market has caught up to that narrative. And I don't think we should expect labor market surprises in direction of lower unemployment rates going into the second half of the year. More like a flatlining from here.
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D
Kevin Walsh, he's been giving the arguments to not deliver the rate cuts for Trump just yet, has maybe given a Bit of time to work the committee and set up the right narrative. But let's see, Andreas. Very, very meaningful for markets, obviously. Let's look a bit ahead towards July or towards June, first of all, before we get to July here, Andreas, because obviously when we're past this Red Friday, all eyes are going to be in the SpaceX IPO. So let's maybe begin there. How's that going to be driving markets over the, the coming weeks, in your opinion?
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Yeah, so we, we already know that it's an oversubscribed IPO. They're aiming for roughly 75 billion in IPO proceeds, which is not a lot. You know, we're talking, depending on the ultimate pricing of the stock, we. We're talking little less than 4% of the float. Right. So it's a very small IPO in that sense. You know, it's not like they're IPOing the whole company at once. You typically don't do that. But we're talking smaller than usual still, right?
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Typically at least 10 to 20%.
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Yes, yes. So in that sense, I would assume that most of the liquidity that had to be made available for the SpaceX IPO has been made available more or less already now. And of course, on top of that, we're starting to see, admittedly very worrying signs that all of the big tech names are starting to tap the equity market here. Alphabet raised equity at least they made the official announcement a week ago or so, and the official pricing was made late last week. So also there you had to free up some liquidity to participate in that equity raise. The equity raise is around 84 billion, but only half of that will be liquidity that you have to come up with now. The rest of it is Q3 onwards thing. So for what we know, for doom, basically everything has already been subscribed to. That's just the point I want to make. And it's probably a part of what we saw last week with some of the hiccups, right, that people had to free up some liquidity for that. But the pipeline is nasty when you look at the IPOs and also the equity race that is mult by Meta now. And, you know, given this AI arms race that we're in. Mikkel. Right. I actually think it's a clever, clever move from Alphabet to tap the equity market first because they kind of tell all of the others to do the same. Right. And it took a week that Meta started. You know, they haven't announced it, but, you know, there's probably some truth to it when we see all of those stories around financial media outlets. Right. And you know, what about Microsoft, what about Amazon, et cetera? Amazon has tapped the credit market mostly, right. And they'll probably also use the equity instrument going forward. I'm just guessing now, but that could very well be likely. And that is every time they tap the equity market, that's obviously a liquidity impact because you have to find the money somewhere. So how big is this right now compared to a typical month in private markets? Maybe that's the last thing I wanted to conclude with for this liquidity story. We typically see a little bit more than 100 billion sucked out of private markets every month. And the SpaceX Plus Alphabet sales here account for 110, 115. So we simply need to see either much less activity in private markets, the blue bar here, or else we need to see liquidity being sucked out of other instruments in already liquid markets.
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D
Right,
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because we, we don't have enough cash on the sidelines to, to just constantly deliver 100 billion a month here. That I think that's pretty safe to say. So it all depends a little bit. But in my opinion, you know, we're also talking about the, the hot dust names of all names from the private side now going public. So of course it will suck some liquidity from private markets into public markets. So I'm not, not all concerned about it. But we'll have to see whether the private market dries up even more than what we've already seen this year. I think that is a very likely consequence of what's ongoing with all of these big IPOs coming from the private side to the public side.
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But this is the part of the capital concentration that we've been talking about in data data center build out where you really begin to see the squeeze in other asset classes potentially. So very, very interesting to follow in couple coming months and quarters in dress a few more notes on the month of June before I move on a little bit. Andres.
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B
Yeah, so I like to have very simple rules and it's been an incredible rally in everything related to data centers and so on and so forth. But it all depends on one thing to make it very simple and that's the price of a token. As long as the price of tokens goes up, it's obviously a clue that demand is rising. But it is also a clue that demand is larger than supply. And as long as demand is larger than supply for these AI tokens, obviously you continue to build data centers. But if the opposite was true, if we get a negative rate of change here. You suddenly start to see a fallout in the token pricing. We did see a pretty nasty drawdown in the token pricing, actually, from January to February. And some of these momentum names within centers actually had a few rough weeks there. Of course, this drives everything. I mean, it drives the hardware trade because this whole bottleneck in, in memory, it won't last if this rolls over. And this is, you know, this is a spot index. You can follow it in real time. So if, if I were you tuning into this show, this, I would have this on my screen every single day. Yeah, this, this is the chart to watch. I, I don't think we can, we can say that this is meaningfully rolled over. We had a bad day on Friday alongside everything else. But we'll have to see what it does this week. If it rolls over, I'm out of this trade. It's as simple as that.
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D
You get so much anecdotal evidence on this. You get stories that Microsoft are cutting the cloud cost. You get all these stories and obviously if tokens get cheaper, people are going to simply use more. That is the ongoing balance. But for the absolute tip of the spear, investment wise, this is the one to watch. Very interesting. We'll try and keep it on for future shows as well. And rest. I just wanted to address, we're running a bit out of time. I wanted to touch on Trump's plan to buy up AI stocks that he tried to float over the weekend. It's incredible that first we got governments outruling recessions, now we have governments outruling stock drawdowns. But that's a story for another time. That, that, this, this, this curling government mentality. That's a story for another time. Sorry, I just wanted to touch a little bit upon the Middle east address because we're getting a lot of questions on that and we had quite the weekend. I had actually believed Donald Trump to, to give us a new dose of Sunday Hopium, maybe also to, to call some of the unrest in markets from, from, from, from Friday, but we didn't get that. On the contrary, we got a situation that was seemingly close to spinning out of control late Sunday, early Monday here because Israel kept on attacking in Lebanon, attacking the capital of Beirut. Iran decided enough was enough. They were going to step in on behalf of the. Francis Bala attacked Israel and then the Houthis in Yemen, remember them, Andreas, they attacked Israel too. And they declared that Israeli shipping was now ruled out of the Red Sea. Now, Israeli shipping during the Red Sea. That's no problem as world markets go, but it's a reminder that, hey, we're here and we can cause a lot of trouble in the Red Sea as well if you don't behave. They obviously have an agreement with the U.S. are they ready to break that? Not yet, but it's a big threat of that. At the very least, Andreas, this is a sign that Iran is not defeated. They're demonstrating that they still have the capacity to influence regional events. On the other hand, you have to remember what Donald Trump said, which was the truest thing he said in months, that a ceasefire in the Middle east only means that people are shooting at each other at more moderate levels. And you know, Israel and Iran, they're going to be shooting rockets at each other occasionally. As long as they keep it at that and then agree that's that, that's okay. Yes, it was a humiliation of Donald Trump that he couldn't talk Netanyahu out of this, but that's the way it is. These guys, they have to throw rockets at each other occasionally. And now we are out of that seemingly. And you know, the ceasefire, it is fragile, but it's alive. The peace process is life. We are getting there at some point. And yeah, as long as nothing more happens, I'm not too worried about this. But obviously we need to see some progress over the coming weeks, hopefully. We've said that for months, Andreas, but, but, but we do need it soon.
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B
Okay, but Miguel, allow me to say one thing. You know, I, I wrote, I think during the first week of April that the, that the crisis is over. What I should have written was that the war is over, because that's actually been true. I think the war is over. And I mean, even, even Marupio explicitly stated that last week. So I think the only thing that really worries me is if the war restarts, if the US gets involved officially, again, also rhetorically, that would worry me a lot. And I think that would wreak havoc on the trends that we've seen in dated oil and fertilizers, et cetera. I think we can get them on the screen because I've just made it a habit to look at physical markets every morning. And we're simply on a slippery slope, price wise. We're going down, down, down, down everything related to the Hormuz. So fertilizers are back at price levels that are lower than pre Iran wars. It's bizarre given how much damage that's been done on supply. The oil price is still up, but at very manageable levels now. I don't even think we're at levels that. That truly demand destruct anything. So it's amazing. And of course, this is very much driven by this cooperation that we see between the US and China in energy markets. They kind of agree that we need to keep energy markets in balance with storages and so on and so forth for as long as the Horn strait is closed. But it's also driven by a lot of unofficial flows and unaccounted flows out of the regions. And the market is more creative than you think when it comes to stuff like this. So I think we've been more or less spot on on that, even though I kind of like your rage baiting analogy on it. I mean, people get so angry when I say I was right about this. Even though everything has moved in the direction I told people that it would. Everything. There's nothing that moved in the wrong direction. Oil is down, fertilizers down, helium gas prices are down. Everything related to the Hormuz crisis is down now, and everything related to risk assets is up. So, I mean, couldn't be more right. Was it correct that the crisis was over? It's a matter of semantics in my view. And having said that, you said earlier today to me that this was kind of my Bunny Blue range baiting strategy, right. That I continuously refer to this. The crisis was over. Tweet to get a lot of rage engagement. And I actually think you're kind of right because I also like it a little bit. And I hope Bunny Blue likes for a rage B as well. For those of you who don't know her, please don't Google it.
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D
Please don't, please don't, please don't. We're not going to bring up the picture. We. We don't want to get demonetized here,
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B
but we are an adult show. But that. Not that kind of adult show, right?
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D
Not that adult. Not that adult. Or perhaps too adult for that. Absolutely interest. So, I mean, let's see what happens here. I'm hoping I can have two good weeks of vacation without everything falling to pieces in the Middle East. But let's see. I'm still an optimist here. I have to say. I think things are looking decently well. Well, if we get a solution here. Yeah, who knows where the. Where the ceiling lies in risk assets Anyway, Andreas, what a great show to wrap up some very, very eventful days and very hurtful days as well for a lot of investors. We know that hopefully we can get some remedy this week. That's all we have for you remember to tune in for Raul and Julianne's live show in 30 minutes from now. That's for Alpha Tier and above on the Real Vision. We'll be back next Monday with another edition of Macro Mondays. See you then.