Is Everyone Wrong About the Dollar? | Macro Mondays

0:00Andreas Steno:Summertime is maybe good, summertime is maybe shit. It's Macro Mondays, big picture, clear place, stocks, bonds, FX, crypto on the way. Get context, satiety right now on your screen. Macro Mondays, level up your week, oh yeah.

0:21Mikkel Rosenvold:Hello all there, welcome to Real Vision, welcome to Macro Monday. My name is Mikkel Rosenwald. I'm your usual host these Mondays. Finally back after a few weeks in sunny Italy. And I'm joined as usual by my co-host Andreas. Welcome to the show, Andreas.

0:38Andreas Steno:Thanks, Mikkel. Finally, the temperatures have dropped a bit here in Copenhagen after, I think, a new record high in temperatures on Saturday. So it was a nasty weekend for us without ACs, to be honest.

0:53Mikkel Rosenvold:but uh all-time highs also in temperature recordings in uh in derbark andreas not the all-time highs we were looking for maybe but uh it's the ones we we had we have a great show for you today we're going to answering some of the the most red hot questions out there in markets are we back to a war in hormuz uh has the dollar topped will the dollar top and uh what is the situation in markets as we look into a week of very, very interesting, both number prints, but also a speech from Kevin Walsh that we're going to preview a little bit here and give you a sense of where we are on markets. Before we get started, though, remember, this show is part of Real Vision.

1:37Mikkel Rosenvold:We have dropped our prices to the lowest levels ever on Real Vision as part of our summer campaign. We are building a new Real Vision. It's very much community driven. You get so much value from Real Vision, whether it's on the Connect or for ProTier. So if you've been lurking around, watching our free show, Macro Monday, maybe wanting to test out the waters at Real Vision, now is the time to go. Check out realvision.com slash pricing to secure your future today, in my opinion. That's some very, very good offers. I was beginning to wonder, André, if these price cuts had impacted our now costing and brought the inflation measure down so much.

2:15Mikkel Rosenvold:Maybe that was the cause, but I'm not sure that Real Vision is big enough to draw that down single-handedly, even though there are very, very great discounts. Okay, enough salesmanship here, Andreas. Remember, guys, this is our free show where we give you a sneak peek into the macro and geopolitical research that we publish on Real Vision. We try to be as actionable and concrete as possible as we dive around the world of global macro, but please do remember that our opinions and analysis might be Sometimes it may be good, sometimes it may be shit. Absolutely. Andreas, I have to say you nailed it last week with the Micron quarterly reports.

2:54Mikkel Rosenvold:Was that your best call this month as we are heading towards the end of June? Or what's the one you've been most proud of?

3:01Andreas Steno:Well, it was a good call. But we've had a pretty volatile week and month in memory stocks overall. It seems like there's kind of an angst that we're approaching a top again, which is, in my opinion, unsubstantiated. we can get back to that. But beneath the hood of our pro portfolio, we also had a huge multi-backer development in one of our biotech healthcare, old health stocks. Probably the first breakthrough in depression drugs in 50 years. And I'll leave that there as a cliffhanger. But yeah, it has moved my wealth in the positive direction. Let me put it like that. And hopefully also some of our members.

3:46Mikkel Rosenvold:That's what we're here for, Andres, at the end of the day. So that was the sometimes maybe good. What was sometimes maybe bad in the month of June, Andres? You know, our data has been fairly vocal that dollar inflation is coming down, that, you know,

4:04Andreas Steno:everything related to the strain of the moves and that energy spike and all that has come to an end. But it's not like the market is listening, really, if you know what I mean. So I guess that's kind kind of been the flip side. We do have some positions in our portfolio very sensitive to the dollar. And, you know, the dollar, just before we went on air here, the dollar made a new top versus the Japanese yen. It's actually the printing at the highest level since 1986, before I was born today. So the dollar has been stronger than I had anticipated. That's probably been the flip side.

4:44Mikkel Rosenvold:Interesting, interesting. And we'll get right back to that in a moment and a bit of outlook on that. But overall, a very, very interesting month. And obviously, we're heading into an equally interesting July. Andreas, let's pause a bit on one of the Hong Kong developments that you mentioned, the situation in Hormuz. Because, you know, I thought things were mostly done with the memorandum of understanding. But apparently, we still have a weekend war going on where there is some fighting every weekend. And then we get our Sunday hopium and everything is good again. So we had obviously Iran is, the way I see it, trying to maximize their leverage, maximize their outcome of this war.

5:21Mikkel Rosenvold:They're trying to establish some sort of control over the Strait of Hormuz, enabling them to levy sound tolls, essentially, to some degree. And the U.S. is not having that. They've had it with the humiliations, essentially, of Donald Trump here, as I see it, and hit back at the Iranians. And then on Sunday, as usual, Axios got the news. I don't know why it's always Axios, but it is. That attacks have been holded and the torques are back on. And perhaps the most important thing to zoom in on here to cut through all the noise is that some ships are still going through. We're not back to pre-war levels in the Strait of Hormuz.

6:03Mikkel Rosenvold:We might never be or might never come there. But are you worried about this from a market investor perspective? or are you confident as long as ships are floating through?

6:15Andreas Steno:So, you know, everyone's short oil now, if you look at the speculators' data. So we obviously cannot cope with a major hiccup. Having said that, you know, the price action is still very benign in oil, also in physical markets, and the oil has been flowing pretty decently since the signing of the Memorandum of Understanding. I mean, sure, it's not like we're back to pre-war levels in terms of the transit, but we will never get back to pre-war levels. Just remember that. I mean, the bypassing is very true and the bypassing is continuing. We just got another reason to continue to bypass the straight-up moves this weekend, right?

7:00Andreas Steno:I mean, on top of it, obviously some flows are going through that we do not account for in this official data. here. And I think the bigger discussion here is whether, you know, is the Omani transit route used or the Iranian transit route? Because, you know, pre-war, it wasn't really separated between the two countries, but now you basically have two shipping lanes.

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8:30Andreas Steno:the americans they've they've done a lot to protect that omani shipping lane also during this weekend right we've seen uh outright you know escorts whatever you call it of some of the ships out of of the straight of the moose and the uranians obviously cannot live with that um but i think you said it a month ago or so michael that you know they've played this card now the uranians it's not like we can we cannot return to norma and pretend that this war has never happened right um so of course a lot of the stakeholders in the region they've they're also trying to position themselves for this you know post-Straight of a Moose world.

9:19Andreas Steno:And yeah, if we... Unless the straight is completely closed again, I don't think we have a major issue here because we've actually managed to cope without the straight for a long while, and we'll also manage to cope with a partial straight for a while, in my opinion, as long as it doesn't close again.

9:39Mikkel Rosenvold:Interesting, Andreas. So let's just leave it at that. We have another a couple of very, very interesting geopolitical developments, especially in the EU-China trade relations. I'll be covering that in my The Drill article later this week on Real Vision. So let's leave it at that and return, Andres, to discussing the U.S. dollar. You published your weekly flagship article this morning on Is Everyone Wrong on the U.S. dollar, arguing, first of all, of the technical outbreak of the dollar, obviously also the relation to Kevin Walsh's remarks. So maybe let's... Let's just roll back a bit in dress.

10:15Mikkel Rosenvold:What caused this rally in the dollar that we've seen over the past weeks?

10:20Andreas Steno:So, you know, if we turn back time to Kevin War's first press conference a few weeks back, you know, he had to take stage with a new set of projections, a new set of dot plots from the members of the committee. and if you look at it statistically they've basically upped every single forecast in the direction of like a more hawkish outcome right rates up while they they seem more scared of inflation right and all of this happened amidst first of all the drawdown that we've seen in inflation in our data for almost two months now, but also as the market pricing of inflation fell apart. And I'd like to show a chart on that exact divergence on page 13, because typically central banks, and especially since COVID, they've been very correlated to the inflation market, right?

11:29Because inflation has been the main worry.

11:33Andreas Steno:It's kind of been the thing that they've used as their guiding star for the policy rights and so on and so forth. And yeah, I cannot recall a disconnect this huge between the rhetoric and what markets are telling you on inflation. So the rhetoric is getting more and more hawkish and inflation is coming down. So that disconnect obviously leads to real rates coming higher. I mean, interest rates adjusted for expectations for future inflation, which is an environment that typically leads to a strong dollar. I think this is a classic example of what I call the generals always fight the last war syndrome that, you know, most of the members of the committee, the last crisis that they had to deal with was an inflation crisis, right, in 21, 22, where they got things wrong.

12:36Andreas Steno:They underestimated inflation. So I think most members would now rather overestimate it than underestimated the inflation picture, right? Because they got it wrong the the other way around a few years back. And I think this chart tells you exactly that. It's pretty obvious that we had an inflation spike in April and May. The big question is whether it is something that we should worry about now that the oil price is basically back to square one. And I sincerely doubt that there is a more lasting inflation picture here. Our data is basically screaming that it is transitory. And having said that, it's not only the Fed that did this pivot alongside falling inflation.

13:27Andreas Steno:We did see the same to some extent in the eurozone. We did see the same to some extent in Australia, et cetera. The big difference here is, and that's probably why the dollar is so strong, is that coming into the Iran war, coming into the new chairmanship, we had expectations of rate cuts priced in the US. so it's obviously been a big change of the scenery from cuts to hikes over the past month or so is this a policy mistake not yet because they haven't hiked interest rates but it's at least a forecasting mistake and I guess your next question is when will they undo this damage and you know I've I've spent a chance this week yeah they already have a chance this week so a few things Mikko So remember that Kevin Walsh, one of the first things he did, he decided to cut down the number of words in the press release from the FOMC.

14:27Andreas Steno:He was very vocal about the FOMC having to take guidance for markets and not vice versa, which is basically one of, you know, Trump has been very vocal on that for a couple of years as well. So where does that leave us? when inflation markets are coming down rapidly, does that tell Kevin Wors that he needs to respond to that? At least that would be my reading of things. But the market is not, it's not like the market has made the conclusion, okay, now inflation is falling, that will lead Kevin Wors to do X, Y, and Z. So I think that's the big test here. Will he admit to inflation markets already, sending him a signal, Yeah, over the two weeks here, because it is admittedly probably the fastest pivot from a pivot ever if he manages to U-turn again this week.

15:28Andreas Steno:So a quick break in your regular programming.

15:31Mikkel Rosenvold:If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible, and this guide will help you navigate what's coming. The link is in the description. Download it now. And to me, there's an even bigger pivot here. Speaking of pivots, because I thought, remember back 9, 12 months, Donald Trump and Jay Powell walking around in hard hats. It was a matter of, is he going to jail him or shoot him? We all expected Donald Trump to put in a puppet. We all expected Donald Trump to put in someone who would just hammer down interest rates, no matter the data.

16:09Mikkel Rosenvold:I'm paraphrasing a bit here. That's not what we have. It seems like there's no political pressure right now.

16:15Andreas Steno:No, at this stage, they'll allow him some time before they ramp up the pressure. So, Walsh will appear on a panel, I think it's on Wednesday in Portugal. If I'm not mistaken, this is a B forum that they typically host before the summer vacation. Remember that, you know, it's only us things that are weird enough to go on vacation now. And most of Europe will wait another month, right? So having said that, Michael, it is typically a very, very important conference, this one, also for the European Central Bank. So, you know, our data is as clear as it can get. I mean, on inflation, the inflation signal is incredibly strong.

17:03The question is just when will those in power admit to it?

17:10Andreas Steno:and you could of course argue that it would make more sense for them to wait until you have the actual confirmation right the actual numbers um from europe we got the spanish inflation report i'm going into details of that one uh for june remember that the inflation numbers in the eurozone they're published at month end, right? And in the US, they're published roughly two weeks later. And the core inflation in Spain was actually pretty soft. Also, when you look at the headline inflation, I think we overall have a pretty soft surprise coming in the eurozone. So again, confirmation that our data is probably right.

17:55Andreas Steno:But you just need to be a little bit patient here because, you know, especially given this fighting the last war syndrome, I'd argue that it makes sense for them to wait until they actually have some confirmation that inflation is coming down. Again, it's not like Kevin Walsh has told us, okay, we're going to hike the hell out of this market, right? They just made a forecasting pivot and then, yeah, let's see.

18:23Mikkel Rosenvold:At least he's not fighting a war with the president. like his president president. That was my point here, which is quite remarkable. It seems like he's been giving sort of a honeymoon period or, you know, the honeymoon period Trump has created for him with the Iran war that has created this impasse of murky data. So very, very interesting address. We have a, aside from Washington's speed, we have a couple of very interesting numbers coming up address, both the manufacturing PMI, we have job numbers. What do you expect this, maybe let's start with the job numbers what do you expect this week?

18:58Andreas Steno:Weaker than the last couple of months so remember exactly a month ago we were one of the very few to get this right we had a pretty material job creation in leisure and hospitality obviously related to hiring for everything from merch shops to drop your servants and whatever you have for the World Cup, right? So, of course, there's been a little bit of hiring within that space still in June for the World Cup, but most of it should be in the price for the job creation. And then overall, if you look at our tax indicators, which I typically like to consult ahead of job reports, we've actually seen a deacceleration in June.

19:50Andreas Steno:also during the sample week. So my best guess is that it will be softer than last month. That is pretty well telegraphed, but I wouldn't be surprised to see it below 100K, which is below consensus. So again here, most people and probably also most of the members of the Federal Reserve Committee concluded that the job market was re-accelerating when they met a few weeks back. And I think that is a decently fair conclusion. But again, it looked arbitrarily strong, let me put it like that, because of the World Cup. And it is something that's very difficult to adjust away because you don't really have any data to compare it with, right?

20:42Andreas Steno:How would you ceaselessly adjust inflation or job creation for a World Cup?

20:50Mikkel Rosenvold:I don't think it's possible.

20:53Andreas Steno:So it's just something to consider. So my best guess right now is that both jobs and inflation will look softer than what they have in their forecast for the next few months here.