Loading summary
Transcript56 lines
- [00:00]
A
Sometimes may be good. Summertime, it's maybe it's Macro Mondays. Level up your week. Oh, yeah.
- [00:22]
B
Hello out there. Welcome to Real Vision. Welcome to Macro Mondays. My name is Miguel Rosenwald. I'm your usual host and we have a great show for you today. We're going to be covering the inflation picture, the oil outlook, the latest on the Korean picture as we usually track every week. Obviously the latest in the memory market. And a little bit of a question. Can the US actually win the World cup with the backing that they have? So lots of great things to unpack for you today. With me as usual, my co host, Andreas. And Andreas, maybe let's, if you can move your head a little bit to your right. Let's address the very literal elephant in the room. You're. You're not in Copenhagen today. Tell us where you are and how, how are things down there?
- [01:09]
A
Yeah, so I'm in France on the island called Corse in. In French. Corsica I think, goes by that name in English. Great island, very cozy, you know, not a lot of tourists. Actually, I know it's pretty early given that most Europeans tend to go on vacation in a few weeks from now at the earliest. Right. So in any case, I'm really enjoying my time here and it seems like the Internet connection is pretty decent here. As a rule of thumb, we're Northern Europeans. Right. Every time you cross a border to the south, the infrastructure, especially in relation to Internet worsens. So I've only crossed two borders. So we're still running.
- [01:49]
B
Technically. Yeah. For an oven dress I, I have no excuses. I'm still in Copenhagen. I just forgot my mic at home so I'm, I'm speaking into airport. So let's just call this a holiday edition of, or vacation edition of, of Macro Mondays. Anyways, Andre, lots of great stuff to unpack. Speaking of France, Andreas, France has a bit of a mixed reputation in some sorts. I feel like it's one of the teams I enjoy watching the most of the World cup currently. Not a lot of people are rooting for them and even our good friend Raul here told us anybody but France to win the World cup, we can get his treat up here. You seem to enjoy France, but, but it's, it's a bit of a mixed, mixed reputation.
- [02:32]
A
So I, let's be honest, right, I think France is the only country that everybody's got an opinion on, most often a negative opinion while they still go on vacation there every year.
- [02:45]
B
Still
- [02:47]
A
it's, you know, it's the mother of all hypocrisy you know, they're humiliated on a running basis by, you know, oh, they always surrender in geopolitics. You know, everyone's calling them out in terms of their World cup team now, right. And still everyone loves their food, everyone loves their wine and everyone loves visiting the country. So I'm here, right, And I'll be cheering for France for the rest of the World Cup. I'll, I'll have to admit for that.
- [03:15]
B
The absolute south of France. We definitely won't be cheering for Norway, that's for sure. Even though they're, they're doing, doing painfully well at the moment anyway. Andreas, let's get on with the, with the macro stuff. We had some sneak peeks into the rolling over of inflation that you've been forecasting or expecting for a few weeks now. There's last week with numbers out of the Eurozone and also some indications from the ECB summit in Portugal. Are you still bullish on inflation rolling over salt for inflation picture going to the coming months or what you're feeling right now based on the numbers that you're, you're tracking?
- [03:53]
A
So a couple of things. We got the numbers from the Eurozone around the calendar term and they looked promising. You know, on, on a eurozone aggregate level we got a surprise between 0.2 and 0.3 percentage points below the economist consensus. So that's point number one. It wasn't really, you know, particularly energy driven. Of course energy came down but it was pretty broad based and if you look at some of the detailed data that we have from some of the larger regions in Germany already delivering all of the soft components of the index, I'd argue that it was as soft as you could have hoped for. Incredibly soft inflation report for June. Obviously in roughly a week from now we get the inflation report from the US if you look at inflation markets so inflation fixings priced by inflation swap desks at banks, they have a substantially lower expectation for the inflation print in the US compared to the economists surveyed. And I'm certainly on team markets here. You know, the now casting that we're doing is also on the low side of, you know, the expectations of many of market of the market participants. And again I kind of also think that the job report we got on Friday from the U.S. confirmed that know some of the impacts that we saw in May were skewed due to the exact World cup that we discussed to begin with. Right. We saw a reversal of the hiring within leisure and hospitality for example. And I wouldn't be overly surprised to see some Technical softness in in a few of the categories related to services in, in this inflation report due to this up and down impact from from the World cup as well. So in any case, yes, I'm still confident that inflation is rolling over and we got a few early soft steps in that direction from the central bank chairs. Last week in Portugal we had the French governor of the CB Lagarte stating that while inflation has clearly surprised to the low side of our projections, no shit Sherlock. I mean the oil price was lower than their mildest inflation scenario already when they met and on top of that we've also seen a positive surprise inflation coming lower than their expectations across a range of other measures. So Kevin Warsh says the same Right. Inflation expectations have come down since I took office, so maybe they'll get the chance to pivot already after summer. I think that's likely, yeah.
- [06:34]
B
Or maybe he's waiting for the official numbers, giving himself a bit of time to get into the job and get the committee behind him. Andreas, if you want to get our full the full analysis of the inflation picture and the outlook for central banks, you should check out Real Vision Pro Approach here. It's a little bit expensive but we have a couple of really good articles every week in there. I really like the one you published on Friday, Andreas, especially looking into the inflation and central bank situation. Also covering what trades we see as good in this scenario with softer inflation prints coming out of our now casting models. Some very interesting thematic sector bets there. While you're on Real Vision, we have a great week coming up so you should absolutely make sure to to sign up for that. Tomorrow at 9am Eastern we have Michael Howell and Ash Bennington in the studio. You interviewed Michael, how was earlier with your address? Yeah, yeah, was a great talk. A bit of a follow up on that on Thursday, 9am Eastern for for the connect here and above we have Joe Bland back to discuss the beginner's portfolio. So if you're looking to to goose step into the Real Vision environment and community. That' way to get started with Joe Bland. Great guy over there. So so lots of great content on On Real Vision this week and ongoing over the summer address. We're going to be keeping up this more or less keeping up our publishing rhythm so no rest for the wicked here. Andreas, you just mentioned oil and you have a great piece out today as well on Real Vision Pro on on the outlook for oil because we've had quite the first half of the gear in oil. A lot of oil punted expected oil to go to 200. We didn't go anywhere near that. Oil is rolled over in, in, in, in the low 70s. Now some people are fearing a glut but you see something else. Take us, take it through your thinking and, and, and, and the charge you're looking at here Andreas.
- [08:31]
A
I wouldn't say that I fear a glut. I would hope that we get a glot. I mean you know a lot of the energy system is still running on you know, natgas and than oil in Europe. So having said that, you know everyone and their favorite oil pundit got wrong footed during, during April and May and everyone called for higher oil prices. The Economist banged the drum on high oil prices like three headlines in a row.
- [09:00]
B
And La land, the la land.
- [09:04]
A
Yeah, I think they, they used that exact phrase that the oil price was in la la land. And here we are with oil prices basically back at square one. You argue that in some instances we're below square one, if you know what I mean. Before the Iran war and the big question is what's next? Because we had this trade right, we exited our energy longs in the first week of April. We basically couldn't get that timing more spot on and then we rolled over into semiconductors and stuff like that. So you know that that change of scenery was basically smack DAC forecasted by our now casting. But I think the next move is, is, is a lot less uniform directionally speaking because you have effect pulling in in opposite directions. And I'd like to start with just a brief status on the straight of a moose and allow you to unpack your thinking as well there Miggle. But if, if we go to the tanker tracker, this is the official one from Bloomberg. We also subscribe to some Kepler data which is, you know, puts this tanker crossing number at slightly higher levels. In short, we're nowhere near levels that we saw pre war. But why would we ever get back there? We've bypassed the straight via pipelines and such things and probably to the extent where approximately 7 to 8 million barrels a day leave the region via pipelines and trucks and stuff like that instead of tankers from the Strait of Hormuz, Iran played its hand. They will never get the strait back to where it was. And they even struggled with Oman trying to gain market shares in terms of the transits now. So I actually think they're stuck in a bit of a mess. But what's your thinking around the strait and whether we should actually expect some action there, if you know what I mean?
- [11:12]
B
I think we might see some Actions because the Iranians are very clearly trying to milk this for everything it's worth while it still has some leverage value. Because you're completely right address we are or the world is bypassing the straight up for Moose to the extent that we can, that we have capacity for that capacity is going to be built out, there's no question about that. Some of it, we have heard some rumors about some of it but that's going to take 6, 12, 18 months to materialize. It takes a lot of time to build a pipeline across the Arabian Desert for instance. It's going to be built. The Chinese are going to build it most likely. So I think the Iranians see, okay, we have a short term window to maximize this. We have a great situation vis A vis the U.S. they have essentially retreated from the war. The Iranians are trying to match this and milk it for everything it's worth. And that is going to create some, some, some, some continued turmoil and that is going to, to, to prohibit us probably from getting back to the usual tanker levels. And it's also going to, to of course give people a great incentive to build new bypassing so the straits. So in a sort of way this is a self fulfilling prophecy because if the Iranians recognize that they have a limited window to leverage the Strait of Hormuz, they're going to maximize what they do with it in that period of time and that's going to accelerate the buildup of shortcuts or alternatives. So absolutely, geopolitically speaking the Strait of Hormuz will never have the same importance again. Both for the sort of technical reasons we've just mentioned, but also simply due to the fact that we had a closure for. Was it three months of the state of Hormuz and it was okay? I mean yeah, we had some volatility in oil markets. You would expect that it wasn't far from the major disaster that every sort of war gaming of this or scenario forecasting of this has been. It's always been a big specter of geopolitics like this big fear that if something happens they're going to shut off the trade over Moose. The world economy is going to down the zero. It didn't happen. We saw how, now we know how to handle it. Next time we'll be able to handle it even better. So the state of removes is gone as this big fear factor. It means that a lot of risk premiums can be reduced a little bit long term and this is very, very positive. But obviously in the short term we have Iranians still trying to maximize this and that is probably going to put some ceiling on at least the number of official crossings. I don't see the problem as much as in oil because oil can be nat, gas can be transported through other ways, but other commodities in dress and other manufactured goods might be a problem out of the Gulf states and they're really going to have to search for alternatives here.
- [14:01]
A
So Mikol, a couple of things. If we look at the oil market live in terms of the oil and water basically being moved from A to B, we've probably reached a new all time high by today, especially if you adjust this running measure for sanctions. What do I mean by that? Well, we have a chart here on the global crude on water and currently no one's really sanctioned. I actually think that's the short version of it. The Iranians can export, the Russians can to a large extent export with some caveats. But you know, there's no doubt to me that we have more oil on water than we've ever had before. And you know, currently not a lot of this is stuck in, in the straight it was stuck to some extent but, but currently not. So we're talking about an oil market that is more than in balance now. We probably haven't an oversupply. But remember one thing, and this is, you know, the key to understanding everything that happened over the past couple of weeks and, and months for that matter. China, China remains on a buying strike. If, if you look at the most recent updated data from from China, they're importing little less than 6 mil, 6 million barrels of oil less per day. It's huge. And I, I, I tend to think that this was the surprise element to the Iranians. Right because they probably counted on the Chinese side to support them in this strait of a move combat with the Americans. But the Americans and the Chinese, they met in Beijing and they made a deal on this most likely. Right. So in short, I have a load of very technical ways of measuring it live that I'll give away to all members in this research piece that we released today. But in short, you need to go long oil when China starts buying again and currently that's anybody's guess, but they typically buy when they find the price to be low enough. I don't think we're far away from that point. Let me just put it like that.
- [16:13]
B
I agree completely. Interesting. This is what China does well geopolitically. They build situations where they can afford to be patient. They build a situation where they could afford to because they have reserves large enough to do this to just stop buying and say, okay, we stop buying, then we don't have to fix anything in the Gulf. We'll just wait for it to fix itself. And that is what they're doing. Once they, once they decide to start buying again, they will have a lot of Russian crude on the waters, as we just showed. They will have a lot of supply to buy from at very decent prices. So at least here we can discuss other areas. But at least here the Chinese are playing this very, very well geopolitically. They can afford to be patient, they can afford to dictate things if they want, but obviously a huge driver for the oil price for the second half of the year. Interest.
- [17:05]
A
Yeah, we would have been in a mess if China didn't rebalance markets in the way they did during April and May, or at least it would have been a lot worse. But thankfully they made a deal with the Americans. I'm almost 100% sure that this was agreed upon in Beijing when Trump and Xi, I mean, yeah, I think so.
- [17:28]
B
Absolutely. Absolute interest. Any more remarks on the, on the oil outlook or where do we want to round off this?
- [17:38]
A
The short version is that, you know, everyone's flipped short on energy now. Even most of the, you know, pundits and media outlets and managers that sounded the alarm on high oil prices through the last three months. We can see the positioning data has rolled over completely and even the economists this weekend basically decided, you know, to throw in the towel and they wrote an editorial where they apologized and they tried to explain why they were wrong and they even followed up with an article where they tried to show their track record over the past 10 years or so, stating that this was, you know, one of the more, more wayward project predictions and so on and so forth. So we're getting there in terms of going long oil, that's just
- [18:32]
B
so, yeah, so, so just the, the, the short version of this is that you have the, the biggest buyer in the world essentially waiting on the right entry point into the, into the market essentially. And that's obviously the, the luxury that, that China has. But it also put, puts a certain floor on the oil price because at some point they will just start to fill up their, their, their stocks again essentially. So it's a very interesting by the
- [18:57]
A
way, holds true also in nat. Gas markets where Europe obviously one of the biggest buyers on earth. They've, you know, we've been on a buying strike to some extent because of two elevated prices and a lack of supply. And we can do that since, since we're currently amidst what you would call the filling season. Right, because, you know, we typically use more NAT gas for heating than for cooling. In essence, because we're not allowed to cool our houses in a lot of places in Europe, it's not even warm.
- [19:26]
B
No, no.
- [19:27]
A
We've had that discussion over the past month in Denmark. Right. A lot of people are against ACS per definition because, oh, you cannot use energy to cool things. You can only use energy to heat things. And as per usual, I bring up this chart showing that more people die from heat in Europe than people die from gunshots in the US and people just cannot wrap their head around that. But it's true. Every single year, more people die from heat in Europe than people die from gunshots in the U.S. yeah, absolutely true.
- [19:57]
B
Mostly to the south, though, but, but absolutely. I'm a big AC guy. It's very, very hard to find companies that are installing housewide AC systems in Denmark, especially in apartments. It's, it's nowhere if your apartment's more than 20 years old. Okay. Denmark is maybe not the best market for such operations. It's much bigger to the south of Europe. But yeah, it's, it's getting there. Okay. Interest. I just wanted to touch on the, the situation in the, the memory trade and, and the AI trade before we round off here in Rez and look at some of our favorites, your favorite Korean numbers. As usual, we have a couple of very interesting news there as well. So we had big, big news out of Meta towards the end of last week's rattle markets a little bit. How do you view that story, Andreas?
- [20:49]
A
Yeah, so I think the vanilla takeaway from most analysts was that Meta has got an excess compute capacity that they're now trying to sell to others. And the logical next step is basically to expect them to, to throw in the towel on their capex.
- [21:11]
B
Right?
- [21:12]
A
Because if they have too much compute, why keep building? So that's why I brought this chart on their CapEx since 23 and you know, is it seven, eight weeks ago that they increased their CapEx projections for this year? And, and should they already now have come to the conclusion that it was wrong? I, I, I sincerely doubt that. If you, if you look at it this way, right, Amazon was once just a webshop. They're now, yeah, as far as I remember, the biggest cloud provider in the world. Right. Close competition with Amazon and, sorry, with Microsoft and Google and that whole Amazon Web Services grew out of excess compute, you could call it. Right. They, they started Hosting themselves and then they figured out, well, we're pretty good at this and started turning it into a business venture. Right. I actually think it's the same thing that's ongoing with Meta here. You know, they've been building and building and building and hosting and hosting and hosting and you know, they've suddenly found out that well, we're pretty good at this and we can sell this at high margins.
- [22:23]
B
Right.
- [22:24]
A
So it could just as well be that, I mean they're trying to create the new Amazon web services at least that's also reading. We don't really have a lot of detail as of this stage. But my point here is just, I sincerely doubt that they've thrown in the towel on their capex. It could just as well be that they're planning to build even more if this is new business venture. Having said that, we got the full details of June's exports from South Korea. And why is that linked to Meta? Well, because Meta is buying a lot of chips obviously. And you know, we basically have two companies in South Korea exporting all of this, Hynix and Samsung. We get results from Samsung overnight European hours, probably very late US Hours as Samsung will report quarterly earnings. Pretty interesting numbers. Right, because you know, Micron blew past all expectations was it last week. And you know, it just seems like no one's really able to get their head around how fast this accelerates at the moment. So that's why I brought this, you know, very detailed chart on, on the South Korean exports with me today. If you look at the high bandwidth memory stuff, Hynix is a bigger player than Samsung within this. But anyway, on this, the second bar from the top in blue here, those exports from Korea increased 32% on the month in June. Yeah, I, I don't even dare to annualize that because you know, if you 32% every month it turns into thousands and thousands of percent.
- [24:06]
B
Right.
- [24:07]
A
Never mind.
- [24:09]
B
And it turns into the DRAM story, essentially.
- [24:11]
A
Yeah, yes. And, and the DRAM story is obviously the, you know, the standard memory equipment, if you will, where you've seen incredible margin increases. The high bandwidth memory is basically multi package chips where you get more memory when you package them. Right. For data centers specifically. So this is a new production line with even larger margins than the DRAM space. And as far as I'm concerned, if you look specifically at HBM and DRAM and if you leave out the rest of the business lines in Samsung and inex, we're approaching plus 90% margins now. It is in, you know, if Your margin is 100% then you, I guess that goal, that's goals. You don't have any costs relative to your sales.
- [25:03]
B
Right.
- [25:03]
A
More or less. So I mean it's just amazing. And 32% increase on the month in the high margin part in June. Well I don't think this is accounted for because you know this is probably what has changed the most in this cycle that we've actually gotten a whole new business line to consider that is growing incredibly fast beneath do it and probably faster than what most people, you know, can get their head around. So what I'm trying to say here is that I expect Samsung to blow past all expectations again. And you know, if you look at it, it's just such a nice visualization of it when you look at their different business lines, chips versus the rest.
- [25:48]
B
Right.
- [25:48]
A
You know, typically, and I say typically the phones and the displays and the screens and what have you. Right. I have a Samsung TV for example. But they probably couldn't care less about that at the moment.
- [26:01]
B
Right.
- [26:01]
A
Because they were making all of their money within this HBM DRM space. Right. So incredible times. And I don't see a single measurable gauge of the activity slash demand within this memory space that is slowing. It is rather accelerating. So of course can markets peak ahead of the actual activity? Sure. I mean it depends on investors risk appetite but. But there is nothing pointing to fundamentals rolling over rather than the opposite. They're accelerating.
- [26:34]
B
Yeah. And if we get good numbers from Samsung, how wide a boost can that give to the AI trade? Or it's going to be more narrowly focused on Samsung or maybe Hynix.
- [26:45]
A
Yeah. So on top of Samsung delivering quarterly results, Hynix will tap dollar markets this week because they're going to launch a so called depository receipt. So it basically means that US investors can buy a US listing even though it's not the direct equity. And until now you would have had to buy either the EWY or one of the DRAM ETFs.
- [27:10]
B
Right.
- [27:11]
A
Because it's incredibly tricky to get direct access to Korean equities as a private individual. But even as a fund manager I've tried a couple of times. It's just easier to to run it via existing solutions. Remember, Korea is not a particularly open country from a capital perspective. I mean also the Korean one is heavily regulated. In short, you can always buy but it's very difficult to sell. At least you need to gain allowance. Right. So yeah, incredibly interesting week. I think they'll tap dollar markets for around $29 billion. And in short, I consider that a short term bullish signal and a medium term very bearish signal because in essence it's probably the same as Hynix admitting to, okay, we cannot stay at current valuations for years, so why not tap it now? But on the other hand, it provides better access, better liquidity for dollar based investors to invest directly in Hynix. That cannot be seen as a negative. Right. Because know the better the access, the more people will probably buy.
- [28:18]
B
Absolutely. Andreas, that's all we had time for this week. Lots of great topics we got covered here. Remember, you can dive, we, we, we dive much deeper into these thematics and get even more actionable and concrete on the real vision platform. So, so do remember to check that out for, for even more on these, maybe address. Let's just round off with your pick for the, for the World cup title. We're getting closer to the, to the final knockout rounds here. You, you told me you're supporting France. Do, do you think they're going to win it?
- [28:50]
A
Yeah, and I mean, yeah, that would be my best guess.
- [28:54]
B
And Norway in the finals.
- [28:57]
A
Hopefully, hopefully Norway won't go that far. I mean I, I actually thought heading in to this World cup that I would end up supporting Norway. After all, there are our brothers to the north, right?
- [29:11]
B
But we, we, we, we deep down, of course I support Norway. We love them. We're just so jealous of them. That's it.
- [29:19]
A
Yeah, yeah. And, and again, you know, typically speaking they're, they're much worse at this than we are. So I mean, that's why, that's why I cannot really fully, wholeheartedly support it.
- [29:32]
B
I mean it's really, really tough.
- [29:33]
A
It should have been us to accept
- [29:35]
B
it, but they're just, yeah, they're just much, much better. So we have to admit that. And obviously, great party. Great.
- [29:40]
A
What, what about the U.S. yeah, I
- [29:43]
B
mean they have the President's backing now. Imagine the pressure on the referee for that match against Belgium. You know, every decision he's got to make, he risks getting overturned by the President. So they have all the backing they can ask for, all the help they can ask for. I mean, yeah, they could go far. They could go far.
- [30:04]
A
I mean it's almost a perfect picture of what has happened the past 12, 18 months. The US plays Belgium hosting the European Union with this backdrop of an old red card and whatever, right? It's basically Trump versus Von Der Lane.
- [30:26]
B
And even in football, the rules fail, the rules based orders out the window, no rules anymore, everything goes. And Europe is working very, very hard to adjust to that. But still, I think, I think we are going to get the World cup home to Europe again. Let's see, Andreas, we will be back on Monday with another show. Remember, a couple of great shows tomorrow, the Michael Howell show here at Real Vision. Really looking forward to that. So do check into that. Thank you, Andres, for joining from lovely sunny Corsica. Hopefully the weather there you have is a lot better than, than what we have here in Copenhagen. We'll be back on Monday, so see you then and see you on Real Vision.