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Foreign.
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Welcome to another edition of Macro Mondays. My name is Mika Rosenwald. I'm your usual host every Monday or I should say almost every Monday. We missed last week due to the. Was it Labor Day? Andreas? I'm not even sure anymore but anyway we're back with our take on global macro. We have a couple of great topics today. We're going to be talking about the US labor market, the crisis in the French government, possibly a little bit about and gold as well. We'll see what we have time for. We have a few listen questions as well that we got in on on X beforehand. So lots to talk about and as usual with me my usual co host Andreas. Welcome to the show Andreas.
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Yeah, thank you very much.
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It's, it's been a hectic two weeks since we since we sent last time so lots of stuff to to pick up and up on Andreas. I just want to give people a quick reminder that this is our weekly free show where we give a little bit of a dip a little bit of insight into our analysis and macro research. We publish all our articles over at Real Vision so you have to go there and sign up to our pro subscription for more. That also includes our or your Andreas monthly State of the Union show that's coming up this Wednesday I believe and we'll also give you access to Raul's shooting the shit show with Julian Patel. That's tomorrow at 10:00am Eastern Time. So lots of great content over at Real Vision. You also get address you you published today your weekly State of Signals article comparing Donald Trump to was it McKinley his name was one of the older presidents. Very very interesting historic stuff. For those of you interested in historical parallels to to to the current situation. Very interesting stuff Andreas. Remember however we try to be very very actionable tell you what we trade and why we trade it but remember that these trade note these trade ideas and all our recommendations might be sometimes may be good sometimes maybe shit. There we go. Gennado Catuso, ladies and gentlemen. So Andreas, let's get on with it. Let's start with the laugh of the week which also dips into our main theme of the US labor market. I love this headline. Howard Ludnick is one of my favorites. Always very very interesting entertaining stuff. Job numbers will get better once the new BLS chief is probably his thing. So essentially as they've said numbers were too bad they hired the guys responsible for calculating the numbers. That's, that's very to the point, isn't it?
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I I hope that he means that the quality will get better and not the, you know, the head, this volume of the headline number, if you know what I mean. I mean it was, it was a pretty lukewarm job report on Friday to say the least, right? A little bit more than 20k jobs added to the economy and we, a few of the usual culprits were back, right? We've seen I think five or six months straight of layoffs in the federal government. I guess it's a lacked response to everything related to Deutsche. Early in the year we also saw weakness in manufacturing or the fourth or fifth month running, which is a string of weakness that we haven't seen in a while in the manufacturing sector. So I mean the missing link here, and I want to really stress this point, is that, well, given the major turnaround that we've seen in migration trends, can we read the labor market through the same lens that we could read the labor market via just say two, three quarters ago? And the answer to that question is a resounding no. I have spent a lot of time over the weekend also published my early thoughts on it on Friday. And if you look at the so called break even rate of jobs created per month to keep unemployment roughly stable, well, we're Talking less than 50k now, most likely given the trends in the workforce. So even though a job report of say 2550 K looks abysmal, it's probably sufficient, more or less. Right. Given that you don't have that influx of cheap labor coming from the south of the US anymore. So we've seen a tectonic shift in the labor market and no one's really on top of what that means yet. I have a thesis, a working thesis and we'll get back to that. But I think it's overstated, this weakness. I mean you need to put it in the context. The US economy is no longer optimally looked through what I call a nominal lens. You need to look at it per capita simply since the labor force is changing.
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Very interesting stuff. And Jose, we'll dive much more into that. I wanted to get your take on this because I always like really simple guides that says should you be bearish or bullish if this or that happens. We had this one we can get on the screen from Sven Hendrich, a guide to the NFP I like very, very much. If the number this is very bullish because the Fed will cut if it's a beat, the economy is strong, that's bullish. If it's in line, there's no surprise that's bullish. If There's a big surprise. Well, nothing matters. So still bullish. I like this very, very much. So we'll get back to the NFP and what this actually means for the economy and how to interpret these numbers because that is very, very much a dynamic factor. Andreas, we usually cover some of the hot takes we've seen mainly on X during the week, and this time I find one from, from a guy named Andres Deno. And we've discussed oil. We regularly discuss oil. We don't always agree on it. We had messages indicating further future production hike from opec. Very, very solid supply picture out there. Still, you think all is bottoming around these 60 to $65 level. Just explain what's going to drive up oil from here, you think?
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Well, I mean, first of all, this production hike that they agreed upon this weekend was pretty well telegraphed last week. So we had obviously had the response in market prices last week. We're also talking about an OPEC group that is now very close to fully normalizing its trend production. Maybe they'll have one more production hike left, but that's kind of it now. So, you know, the underlying latent production that was always there in case prices started to increase is no longer particularly meaningful going forward. And given that we're approaching the point where if the economic cycle starts to recover, especially in manufacturing, we can get back to whether that's the case. We're talking about an OPEC group that no longer is able to respond to that. So I'm actually surprised how well the market has coped with these production hikes. If you look at positioning data, both from retail investors, but also institutional investors, hedge fund in particular, we're talking about a very, very, very negative positioning in the energy space. So a lot of people rushed into this trade on the OPEC production hikes, but also rushed into the trade on hopes that Russian sanctions would be lifted and all of that when we had the meeting in Alaska. And that's obviously more or less off the table right now. We're probably even going in the opposite direction, if anything, at least Europe is. So I think the stars are aligning now for a pretty decent contrarian setup here where, you know, everyone's involved on the short side in the trade and we're getting to the point where even a production hike, as announced this weekend, is not able to push down the price. And that's very telling from a price action perspective, in my opinion. So oil is going up now and I think we'll place some chips on that.
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Interesting. Andreas, I tend to agree with you, I think we are close to the bottom level. We're also at a level where governments will look to refurbish their stockpiles, et cetera. So I agree with you there. Andreas, let's get back to the non farm payrolls because I pulled this off@Bloomberg.com, very simple we can get on the screen here. Explain to me like I'm 10, why is this not bad news for the US economy?
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I'm not trying to construct an overly optimistic picture around the labor market. I'm just merely stating the fact that we're amidst the tectonic shift in the labor force. So first of all, why is that important when you look at the non farm payrolls in layman terms, the non farm payrolls basically just counts the number of payrolls in the U.S. economy. So Miko, let's assume that you work two jobs. You would be counted twice by the Bureau of Labor Statistics in the non farm payrolls. And you know, who are the typical suspects, Sorry for just stating the fact here of two or three jobs. Well, it would be that migrant now being sent home or returned to the home country when you don't have super solid data on this. But if you look at various investigations on the topic, a migrant worker is more likely than a native worker to have more than one job. So it basically means that there's a lot of double counting in both directions. It was also the case both last year and in 23 where we had that massive influx of labor that you counted twice or three times for breach piece of labor coming in and now we're seeing the opposite. So I think it kind of overstates or exaggerates the trend a little bit here since we have this double counting issue. Outside of that, obviously the unemployment rate is going up and it's been pretty well telegraphed. It's been the direction of travel for at least a year or so. We had a similar scare roughly at the same time last year. Remember a couple of weak labor market reports, a couple of bad unemployment prints and then we got 50 basis points from the Fed reserve in September. Here we are one year later and it could very well well repeat itself. I mean, I wouldn't rule out 50 basis points at least. So I, I think it's manageable still.
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What's going on?
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We're talking about a very low hiring, low firing kind of labor market. And if you look at, you know, I try to look through the noise oftentimes when, when there's a lot of, you know, Discussions around the methodology and whether there's double counting or triple counting and all of that. And if you look at the tax receipts withheld by employers on behalf of their employees, basically the most natural way of gauging whether there's income in the payrolls tax base, we're still talking about an economy that is growing nominally. So I mean job creation is not good, but it's not through the flow either. And part of that tick a bit unemployment is probably natural here. We had unemployment below what is probably considered natural unemployment levels. I still don't think we're in crisis mode and it would be, I'd say almost amusing in my opinion if we saw a re acceleration of employment trends right now because no one's really willing to bet on that. No one's really willing to bet on the Federal Reserve reviving the economy here. So I think there's an asymmetrical outcome space here. Again, I'm not trying to paint a picture of a solid labor market, but it's just not as bad as it looks here.
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So part of it is obviously what you need to look at. Some of this is migration, some of it is humans need not apply. That entire trend of workplace is going about without humans perhaps. Yeah, and, and, and then obviously let's, let's just round that off. Andreas, your, your, because I hear increasing chatter of a 50 basis point cut here in September. Is that realistic? What, what's, what's, what's your percentage evaluation of that?
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Well, I, I, I think it is a feasible outcome. It depends a little bit on the inflation report this week. Right. Because it, it's kind of the last piece in the puzzle and the inflation report is expected to be, I mean, hot ish. So I, I even think there is a bit of leeway here for it to be a decently hot report and they still deliver cuts obviously. So yeah, let's call it a 50. 50 whether it's. So I put more emphasis on it than market pricing right now, the very least. And even with a very, very hard inflation report this week, they'll still cut. Pretty sure about that, which sounds detrimental to many, but I think they'll look through it and I'll actually like to return to this topic of inflation a little bit in the context of this non farm payrolls report. I think this morning when I showed up at the office one morning is a bit of an exaggeration there as well. Early afternoon. I, I told you, Mikkel, that I saw a TV clip following a few of the, I think they're called berry pickers in Oregon and the ice patrols had returned quite a few of those over the past months. And the owner of that farm lamented the development even though she was a Trump supporter, stating that it was impossible to find any, you know, new members or new berry pickers locally because they didn't want the job. And you know, I'm, I'm not a farmer, but I think the apples needed to be harvested more or less now or otherwise. Yeah, they'll end up being useless. Right. So the point here is this is a very, very practical consequence of what's going on right now and an example of why a non wheat, non farm payrolls is not necessarily equal to a weak demand for labor. Because that farm owner, she clearly had a demand for labor. She was just not able to fit her demand into the supply side. Right. And the question is, now that we're amidst the tariff regime and all of that, how do you really solve this puzzle right now? Because they're not going to turn the tide on this migration policy. It seems calved in stone that is almost, you know, it's almost a cornerstone of this administration. Right. And it's one of the few areas where they get solid approval ratings from, from their electorate. Right. At the same time you're not really incentivized to import strawberries or apples from abroad due to terrorists.
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Putting it very lightly.
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Yeah, yeah. So what do you do as a farmer? You simply have to invest in automation. Right. I, to me that's the only outcome here. And whether you can sort of turp or charts that to happen during a much shorter time span than otherwise. Let's see, it was exactly what I spent some time on this weekend for my editorial. Whether, you know, is it, is it a feasible scenario that we get massive capex spending from a lot of small and medium sized companies just because they're forced to? And so to me this is a cocktail that's it screams capex boom. But we're yet to see it outside of the data centers and AI and all of that.
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And that's exactly the news. I've been looking a lot into this because I massively buy into this thesis. It's a case especially for our European welfare states as well. We need robots for all the manual labor that we don't want to do ourselves. There's not really anything to buy out there. It's still very much in test stage. Even the solutions that are more or less operational, there's no scaling in it yet. So it's going to Take some years and that's okay for tech to take some years to develop. But this is a here and now problem for people. I mean people are getting kicked out now and the robots may come in five to 10 years. So there is sort of an interim period that's going to be very realistic. As you say, it's sort of a trifecta of objectives here. You want immigrants and workforce is being ejected from the US Imports are being discouraged and prices need to be controlled. It's very, very tough to make that work at the same times unless robots comes in and fix everything. And if I was running a farm or orchard or whatever, I simply don't know which what kind of robot I would go out and buy. I'm not saying I'm an expert on it. If people know of some companies that are producing these, it, it's very, very tricky. But, but there is a huge potential if you have a robot capable of picking cherries or berries or what was it interest?
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I, I, I, I, I actually know for sure that there is a robot capable of picking cherries because I, I've watched a film of that with my son, but that's the only reason why I know it. Yeah. You know, there are some solutions out there, but obviously you're right. You cannot just, yeah. Change this whole landscape in a matter of months.
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No, no. I saw a video of a prototype out of China that was able to fill the dishwasher in a test environment and that was huge news. And I mean if that is cutting edge that it's able to fill a dishwasher at test level, then we are still five to 10 years away from mass implementation of this. But the demand is incredible enormous for these kinds of solutions. So it's a very, very good business.
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I honestly think that that will end up somewhere in between to some extent, Michael, because it's not out of the world to think about an optimus robot walking around one of those berry farms, but controlled via joystick in India.
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Absolutely.
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That could very well end up being the compromise here. So you, you kind of keep the cheap labor just via robot locally, right?
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Yeah, yeah. So you, you don't have to have them roaming around your streets. They can sit at home in India or whatever you say. That's, that's very much true. That's, that's how warfare is being conducted now. So why not farming as well? That's a very interesting thesis and just we'll have to develop that a bit more into companies because as you say, the capex potential in this is simply incredible.
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Yeah, yeah. And if you look back at William McKinley's tariffs back in 1897 or whatever it was, whenever it was, we had a capex boom worth roughly 20% of GDP during that four year time span that followed immediately after I think right now between friends for roughly half of that. So 10% of GDP in CapEx, something like that. So there is really a potential for a capex boom here. The question is just whether it, you know, will we see a short term light crisis in the labor market before we get to that boom. And I think the Trump administration will do more or less whatever it takes to avoid that. Not turning the tide on immigration obviously, but they can turn the tide on everything from the housing market to other such components to try to underpin the demand side. Anyway.
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So Andreas, I just want to get through one or two list of questions here. We had one on X here from Dom. We'd love to hear your thoughts about the growing a big crash is coming worry that some of the macro guys are flooding here in X and we don't have to mention who's culpable of that Andreas, but, and I know we touch upon this a lot, but it is very big out there that a big crash is right around the corner. Just briefly your take on this. Should you be worried about this?
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So I kind of get why you get those historical comparisons right now with the labor market that looks to be softening and unemployment going up, et cetera. It kind of smells like a very late cycle early stage recession kind of dynamic in the labor market. But given that we have this complete reversal of migration and given that we have this known unknown of how much AI will impact hiring. You just need to take a look at the contribution from the technology sector in terms of GDP versus their contribution to hiring. It's just a coupling. It's one of the most crazy charts of that seen. I think the technology sector is adding plus 1% of GDP a year right now given the capex boom. And they're not hiring, which is out of this world that disconnect. So I'm not sure you can read the labor market the way many of these doomers do. At least I would like some more evidence. So for now column is very skeptical that this is actually a labor market crisis. Let me put it like that. And if you look at it live right now, I mean the September weakness is one that is highlighted over and over and over and over each year. And now I'm just, you know, life staring at the NASDAQ here And I mean, it's basically just flat on the month. It's up 0.7% actually, since exactly a month ago. So, I mean, we're, despite all of this, we're just moving sideways, which is not too bad. Right. It goes to show that the positioning is still not particularly upbeat. And I kind of like to draw parallel to what I said on oil earlier. I mean, the positioning is so negative. And it remains the case that a lot of people have reluctantly bought into this rebound since Liberation Day. A lot of people keeps telling me that, okay, the goal post has moved, fair enough. But the tariff trade war will still cause recession ultimately, and that's why we don't see hiring right now, etc. Okay, so let's look at the size of this shock. I mean, one thing was the shock to sentiment early on in the terrorist war, which was nasty. It was very nasty. But now that we've sort of turned the page on that sentiment shock and tariffs ended up being little lighter than what was feared initially. We're talking about tariffs incoming that are worth, say, between friends, 0.3% of GDP. It's not a particularly big tax hike. And if you square it with the tax cuts that were delivered in the big beautiful bill. I'm not sure that this is a macro event. I'm simply not sure. We talk about tariffs all the time, and I don't get the fuss anymore. I don't think tariffs are worthwhile spending that much time on. It's a tax, as you know. You obviously see taxes elsewhere in the economy. And the tax hike that we've seen here, yes, it is big in the context of tariffs and import taxes, but it's not big in the context of taxes. Overall.
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Interesting interest, very good points there. I just want to touch upon. We've had a lot of questions on the. Once again, a political crisis in France, in the UK as well Japan, lots of other countries. So just a very quick take on this and some perspectives on this. We have a very big demonstration in France tomorrow. We expect the French government to fall. Essentially, when we say government, it's not President Macron that's important to remember, it's his prime minister. So. So the French political system is essentially paralyzed right now. There are three parties of more or less equal size, and they have no willingness to engage in any coalition building. And this is a big trade union demonstration tomorrow to block air. I believe it means block everything. And that is a very good moniker of what's going on in France right now in the sentiment, because they have knife pension age, they have retirement ages, they have a very nice system. It's just not sustainable because they have a yearly deficit of around 5 to 6% of GDP. They have a debt to GDP ratio of more than 100%. So something has to change, but there's no political will to act on it. That's essentially why this government is crashing. I don't think you should expect a right wing nationalist government to come in place here. We might get elections, but they're not going to change the picture massively. We need the presidential elections to truly stir up French politics here and it is a very poor situation. I think, Andreas, one point here that there's a lot of criticism for the Trump regime and all the trouble that he's stirred in the financial markets. But you have to say that the current US political system is capable of taking action. You can disagree with the action, but a big, beautiful bill was put forward to Congress which was passed through relatively easily. I know there was a lot of back and forth, but compared to this, I mean, nationwide demonstrations block everything. The US currently has a political system that for all its flaws is actually delivering reform. And that's very, very positive for markets. Investors like that somehow they don't like systems that are paralyzed like the French, like the UK might be heading into perhaps even Japan. And that is an overall investment thesis to look out for, especially as the US could be heading in for more of a what we in Europe would call a hung parliament scenario after the midterm elections where it's going to be much, much tougher for, for President Trump to present and get new legislation passed. So there is, there is a trend to look out for here.
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Yeah. And Miguel, I, I can safely say that you're, you're taking the contrarian standpoint now that you're saying that right now the US system is more investable than the European, at least among institutional professors, investors. But I, I couldn't agree more because, you know, ultimately, I mean, you can agree and disagree with the morals of it, but, but, you know, money matters here and that's why a system that can take action is, is, you know, much better equipped to deal with a lot of economic challenges than a system that cannot take action. And my best guess is that nothing happens in France and in this case nothing happens is not a positive because nothing will happen. I mean, for the uk yeah, I'm as pessimistic as I can be on the UK right now. For Japan, I'm a little bit more upbeat because what they're Basically trying to push for in Japan is more fiscal stimulus and you could argue that that country has been in need for that quite a while. So I think Japan is still an okay case and that Nikkei has actually done pretty well despite this turmoil.
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So yeah, anyway that's it for all the political crisis around the world. We also had a question on the UK government if it will fall. I don't think so. The, the system is in the UK is a little bit different. At some point Kistama might be be replaced but, but, but labor is going to defend their, their majority until they have to to to throw a new election. We' future shows when it becomes even more actual. Any final points Andreas, on positioning? You mentioned oil, you mentioned an overall positive outlook, especially heading into the expected cut in September. Any final points? You Andreas?
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Yeah, so I mean we know that we're currently living through the worst seasonal parts of the year from an investment perspective and you know, nothing has really happened. I mean we've moved sideways. It's not that bad. We've managed to cope with a lot of bad news over the past three or four weeks without much happening and you know, really positive screens that I watch right now. So I, I think we'll get through September in, in a pretty light manner and then you know, October to December especially given how economic surprises are shaping up with the you know, prior stimulus that we've gotten from a lot of global central banks. I think we're, it's shaping up to be in a rally into year end.
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Christopher. Looking forward to that also. Looking forward obviously. And you should as well listen to shooting the with Roland Julian Biddle Tomorrow at 10:00am Eastern on Wednesday, Andreas gives us monthly State of the Union. So lots of great stuff to look out for especially if you're on the pro chair with real vision of course. So, so big recommendation for that.
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Yeah. And then Michael, my, my weekly editorial on like the more fundamental macro topics is out say in a few hours from now comparing the current terrorist regime to the terrorist regime of William McKinley. And I can guarantee you that it's been a bit of a ride to find solid data sources going back to 1890s. But I've gotten there after a few hours spent on trying to orchestrate some time series etc. And the conclusion is actually pretty compelling and not necessarily negative. Let me just put it like that. Yeah.
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And you had political crisis in France in the 1980, the 1890s as well, I can assure you of that. So in any case that's all we had for you this week. Thanks for all your questions and all your support out there. Thanks for joining us. Thanks to you, Andreas, for joining the show. We'll be back next week.