Is Risk-On Too Risky? | Macro Mondays: August 31, 2026

0:00Andreas Steno:Summertime is maybe good, summertime is maybe shit. 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, oh yeah.

0:22Mikkel Rosenvold:It's Monday, it's time for Macro Mondays on Real Vision. My name is Mikkel Rosenwald, and as usual, I'm joined by Andreas Steno. Welcome to the show, Andreas. Thanks, Mikkel. Good to see you. Yeah, you too. So, Andreas, I'm going to dive right into it, and then we're going to catch up a bit more on the Kevin Walsh speech and everything and take a deep dive into it. But let's get the headline straight here. Surprisingly hawkish rhetoric, maybe, from Kevin Walsh, at least in the opinion of many pundits. Is this the time to pull the brakes on some of your risk traits, Andreas? Let's start there. No.

0:59Mikkel Rosenvold:You wanted a yes or no, I guess.

1:02Andreas Steno:But the longer answer is that I'm more in doubt than a week ago.

1:09Mikkel Rosenvold:Okay, Andreas, we'll dive much more into that Jackson Hole speech and the outlook for equity markets. We're going to take a look at the state of the US economy and the war-spesant war going on. War is perhaps a bit much when we look at what's going on in the Middle East. That's a true war. And we're going to talk a little bit about that if the war is restarting with the attacks on the Varka island that we have over the weekend, Andreas. Always great to learn new geography when the geopolitical show goes worldwide. So Andreas, I know you run a language processing model on the Fed sentiment based on the actual words uttered by whomever is in charge at this point, Kevin Warsh.

1:55Mikkel Rosenvold:So could you maybe in the light of that, what did you learn from his Jackson Hole speech last week?

2:01Andreas Steno:So, you know, at first glance, it was admittedly a hawkish speech. But was it more hawkish than what we've seen from, you know, various of the lieutenants in the weeks prior to the Jackson Hole? According to this language processing model, no. And that was actually quite a surprise to me when I ran the numbers. It wasn't more hawkish than what we've seen from the Fed over the past few weeks. It wasn't more dovish either. It was more or less just the same. I guess the true surprise for many, if we look at market pricing, was that he didn't really lean into the soft inflation trends that we've had, say in July, for example.

2:45Andreas Steno:and in contrast to what he said during the july press conference he essentially re-established you know crystal clear guidance around the pce index being the one to follow or the one to track in terms of inflation which was you know up in the air to be honest after that july press conference He talked about new measures coming. It wasn't clear to me whether the inflation mandate was strictly tied to the PCE index after that press conference. It is now back to where it was ahead of that press conference. We're watching the PCE index. And the PCE index looks hot. There's no doubt about that. So the big question here is whether the PCE index is onto something relative to, for example, the CPI index.

3:40Andreas Steno:The CPI index, another inflation measure, is a lot softer than the PCE index right now. And obviously, since Boris has now put the PCE index back in the limelight, I've spent my weekend digesting that exact inflation number. So what do we make of this extreme divergence between PCE and CPI? It's on page seven in our slide deck. And remember, you can download the slides after this. Well, if you look at it in core terms to begin with, we're talking about the second hottest spread. So PC higher than CPI since 1960. And we only have one more extreme observation. That was in 1983. and how do we characterize 1983 from an inflation standpoint well it was an inflation that fell off a cliff basically it was an inflation landscape that went from very hot to a lot this hot i think that's very fair to assume that it's the same case that we have now given this you know historical study my best assumption and i've reiterated that for at least a handful of weeks in a row now is that the CPI is the directional guide while the PCE is slower in changing inflation regimes.

5:05Andreas Steno:And there are quite a few reasons why. I mean, the PCE adapts a few of the categories from the PPI index instead of the CPI index. It has less focus on shelter costs and shelter costs have looked very soft over the summer. Those are some of the reasons why the PCE prints at much higher levels than the CPI. So all in all, I'm tempted to say that he kind of solidified the mandate around PCE again, right when the PCE is about to roll over. So what does that mean for the outlook? I think it was Morgan Stanley, one of the big investment banks, that wrote as a takeaway from the speech that if WASH does not hike interest rates in September, he's at risk of sort of a cry wolf event now, right?

5:58Andreas Steno:That he's crying wolf around inflation without really committing to anything. At some point, you need to commit to doing something about it. So he's reiterated that we want inflation back at 2%. That is our strict mandate. Given the current setup, inflation is more important than jobs and blah, blah. He said the same thing again. So at some point, of course, you need to respond if the inflation index is printing at higher levels than what your mandate tells you to bring it to, right? And I kind of have sympathy for that. In case he doesn't do anything in September, we'll likely see another curve steepener event where the long bond yield goes up.

6:34Andreas Steno:In contrast to what Scott Besant has been trying to orchestrate over the past few weeks here. So in that sense, there is this, I wouldn't call it a battle between Wars and Besant. It's not like they're fighting each other in public, but there is a tit-for-tat ongoing behind the scenes. And we'll have to see who comes out on top. What I'm watching right now, and I think that's maybe the most interesting takeaway from a risk asset perspective, is how does Scott Besant respond to this? Because he's basically promised to double up the buybacks of long bonds, but he said at least double up. what if he triples them or quadruples them or 5x them?

7:14Andreas Steno:He can do that.

7:16Mikkel Rosenvold:He has the cash to do it, yeah.

7:17Andreas Steno:Yeah. And we'll get the first sign of what he intends to do next week. So I think it's on September 9th. There's this buyback operation, right? So my gut feeling, we're talking about trying to forecast people with weird incentive structures right now, is that he'll buy more than double up to try and send a signal to the bond market in nine days from now. But we'll have to see. And then it's a true tit for tat between Walsh and Bessinger.

7:48Mikkel Rosenvold:Absolutely, Andres. One thing I just wanted to dive into that maybe I'm reading too much into it, but as I understood Kevin Walsh, he said that interest rates at the current level are maybe containing inflation and simultaneously not hurting the economy, not hurting the AI. build-out. Is that a fair way of putting it?

8:10Andreas Steno:Yeah, so I mean, he kind of, you know, when he discussed financial conditions, he referred to the data center build-out as not heard by current conditions, but he referred to, for example, agricultural, you know, farmers and agricultural goods, and for example, housing being heard by current conditions. So it kind of matters whether you talk about one part of the economy or the other.

8:36Mikkel Rosenvold:My question was this, does this open sort of a slimmer of a window if we begin to see hiccups in the AI trade as a result of interest rate fears over the level of debt being used to accelerate the AI? Does that open any sort of window or am I being too positive here?

9:00Andreas Steno:Well, I think, which basically refers back to the question you asked to begin with, I think there is a risk that we see a setback into a rate hike, right? If we get a rate hike in September, it's not done and dusted if you look at the market pricing, but it is approaching a base case for many. It's like everyone has concluded that Kevin Walsh has forward guided a rate hike, even though he explicitly says that he's not forward guiding anything.

9:24Mikkel Rosenvold:But that was very explicit to the point that he wouldn't fuck up. But yeah, it's going there even beyond the coin toss levels, I think.

9:31Andreas Steno:But having said that, right, it's kind of the market-based case that we get a couple of rate hikes now. At least a couple, right? Maybe even a tad more. So, you know, a hike without any like clear message that we will get more. I don't think that's a biggie now because it's already in the market price, right? Of course, if we get a rate hike and they kind of signal that more is coming, they probably won't, given that he's not forward guiding anything. Then it's another question. But I've said it also on other shows and in our research papers here and there, that I think the period between now and the midterms looks wobbly.

10:16Andreas Steno:I'm not sure we'll get a lot of direction for markets. and then I think post the midterms will get a better environment again.

10:23Mikkel Rosenvold:Yeah, that is sometimes what you see around the midterms. We've written a bit about that. Okay, rounding off on Kevin Washington, we'll dive more into what we see in the economy here. I can't help but wonder, is Donald Trump okay with this? Is this what he thought he would be getting instead of Jay Powell?

10:44Andreas Steno:Well, you could argue that it's the second time that he's hired a hawk auditioning as a dove. Yeah. Which is kind of odd, right? Kevin Walsh was kind of hawkish when he was on the committee and the great financial crisis as well. He's pretty known for his extreme hawkishness just before Lehman went down, right? So having said that, let's try and assume the responsibility of Kevin Walsh here, you and I, right? If you entered the office with the backdrop that Kevin Walsh is entering the office with, wouldn't it make sense to try and solidify your institutional mandate, your credibility and all of that to begin with?

11:28Andreas Steno:Try to tell everyone, I'm not a puppet. I'll do whatever it takes to safeguard the credibility of this institution. And then as soon as you've established that, you have a better chance of actually tilting stuff in your direction. I wouldn't rule that out. It's very difficult to forecast Kevin Walsh right now since he's not saying a lot. But given the more medium term outlook for inflation, also given the analysis I laid out on the PCE index, I'd say that it's decently likely that we have a very soft inflation window between Q4 and Q1. We can argue that 2027 will be a more inflationary environment.

12:09Andreas Steno:I think that's likely. But at least for now, I think it's the base case that we'll see inflation coming lower into the end of the year and into the first quarter of next year. So if he delivers a hike in September and kind of tones down the expectations with whatever tools he's got in his toolbox, I think it's a decent start for him. And he'll solidify his credibility. He'll avoid all of those accusations that he's just a Trump puppet. And then maybe he's got more to work with next year. I don't know. We're talking about forecasting, again, as I said, a person with a very weird incentive structure here.

12:52Andreas Steno:It's not easy. And ultimately, the big question here, is it enough to alter the trajectory of the business cycle if we get one rate hike? No. I mean, we obviously need more to kill the cycle. It's not like everything ends with a 25 basis point hike. So, you know. No, no. The big question here is whether is this a cycle of rate hikes or is it just sort of a mid-cycle adjustment? And I'm more in the mid-cycle adjustment camp if we get a rate hike at all. Having said that, I personally still think that we're over-reading what he said on Friday. Why is everyone chasing this as a forward guidance when he's explicitly telling you not to?

13:40Mikkel Rosenvold:He told us that he won't. He told us, don't look to me for trades, essentially. Do your own homework. Do your own trading. Don't just wait for me here. So, yeah, he's trying his best not to become a meme, a lot like J-Powell all the time. So, Andreas, before we dive a little bit more into the situation in Hormuz, just a few notes from our offerings at Real Vision. We're throwing out free content left, right and center at the moment. Obviously, Macro Mondays is free for you to watch every Monday, giving you a sneak peek into the stuff that we do on Real Vision. Raoul Powell is doing his Drinks With series, which is also broadcasted free on YouTube.

14:22Mikkel Rosenvold:That's always hilarious to join. It's on September 3rd. That's on Thursday at 7 p.m. Eastern. And in case you missed it, Andres, I know you didn't miss it, but listeners missed it. You sat down with Raoul last week as well on his Journeyman podcast. So really absolutely worth a watch, that one. And obviously to compliment that, we have three flagship reports each and every week published. our portfolio update every Friday, your steno signals editorial every Monday, and then I publish the drill geopolitical update on Wednesday. And Andreas, speaking of geopolitics, even though the war in the Hormuz have sort of fizzled out from a military political perspective, we're still seeing massive spillovers to energy markets.

15:08Mikkel Rosenvold:Obviously, the crack spread we'll get into in a minute. So a quick break in your regular programming. 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. Then over the weekend, we heard that the US had attacked some rocket launches on Lark Island. And just to give you an idea of how I assess situations like this, because that's also useful when these news hit and you decide, okay, do we need to panic about this or do we need to just monitor this?

15:45Mikkel Rosenvold:right now the battle is about the Strait of Hormuz so it's about a stretch of water essentially okay so what was attacked on Larca Island rocket launches yes but rocket launches designed to drop to have the rockets drop sea mines so this was an attack aimed at limiting Iran's ability to disrupt the flow of traffic in the Strait of Hormuz So again, linked to the Strait of Hormuz. This means that sort of in the strategic military thinking, you're still in the same arena. You haven't begun attacking ground troops or allied countries or civilian targets. You're still sort of in the we're fighting about the Strait of Hormuz situation.

16:27That gives me some calm here, even though the Iranian response was quite violent.

16:36Mikkel Rosenvold:I think markets are overacting a little bit to this. But again, we are getting to a point where the crack spreads and the continued impact on energy inflation is massive, Andres. You labeled a good start to the economic D-Day. I think that there was a clever way of looking at this economic D-Day. But just explain to us what you're seeing in this crack spread chart that we use regularly.

17:04Andreas Steno:Crack spreads in dark blue, they kind of peaked right around that D-Day announcement. You have to acknowledge that, yeah. Kind of the same if you look at oil futures and dated oil. So at least if we measure it from a market standpoint, it's obviously a good start. I don't know whether it works or not, but it worked from a market perspective. Having said that, technically speaking, I think it's a good zone to short energy prices from this one. Also, since given this sine wave war where we go from peak to trough to peak to trough to peak to trough, it kind of works as a good entry to short energy prices just after an escalation rather than doing the opposite.

17:48Andreas Steno:It's very tempting to go long oil when you've seen an attack, but maybe it's better to go short oil. So I have a short oil lean here. And speaking of the impact of this, obviously, the key to unlocking this disinflation that I've been talking about into early next year is probably to get some sort of second memorandum of understanding, since there is a massive potential. You can see the gap basically here between the crack spreads and the oil price. That is consumer disinflation ready to be unlocked as soon as we get that refinance capacity from the Middle East online again. As some have pointed to when I've shared that intel, there is also an issue with the refinance capacity in Russia.

18:37Andreas Steno:I have sympathy for that view as well, just to be clear. That matters, especially for diesel. and we're obviously talking about Ukraine striking refiners inside of Russia on a running basis. So I think roughly 50 % of the refiners' capacity is offline in Russia. It matters for diesel because they then ban diesel exports, while the lack of refiners' capacity in the Middle East matters a lot more for jet fuel. Having said that, those two are obviously interconnected because a refiner can switch from one to the other. And, yeah, what I'm trying to get to here is that don't go long oil when you've just seen an escalation.

19:16Andreas Steno:Don't buy the inflation story when you've just seen an escalation. I think it is a good idea to take the opposite side of that bet when markets start to price in the escalatory path, which was kind of the case as well with the D-Day stuff. Everything related to prices peaked around that message because markets build up expectations of an escalation and then you get the fade from there. And I think this weekend is kind of an example of the same. Again, if we get some sort of products deal around the straight of the moose, we're talking maybe four or five months in a row of crystal clear deflation in headline terms because we'll unlock a lot of that inflation coming from crack spreads.

20:05Andreas Steno:And that would be the game changer for me because no matter how little sense it makes, especially the European Central Bank, but also to some extent the Federal Reserve, they will look at headline inflation, even though it's very impacted by wars and stuff like that. And what does it matter to hike rates if the oil is offline? Of course, you could try and impact the demand side of that equation, but you can impact the demand side of that equation with a long time lag. And in between now and then, of course, the supply side could be very different. So I'm not really sure that central banks should respond to this, but they will.

20:47Andreas Steno:History tells you that they will, because it's just very difficult to defend another approach. When inflation is running too hot, even though it's due to a war, we need to respond to some extent, and especially the European Central Bank is already very trigger happy as a consequence.

21:04Mikkel Rosenvold:Yes, and it seems to be trumping other concerns like the job markets, et cetera, simply because it is very, very urgent for the administration also to get the prices under control, essentially. It is what kills governments, after all, inflation is. Okay, Andreas, let's fly over a few other of our regular charts that are very interesting right now. South Korea, the classic, Andreas, the big 2026 chart. I know it's been used before, but we've been using it a lot in 2026. We've talked a lot about spreads here, PCI, CPI spreads, and the track spread. Is this the biggest spread between South Korean exports and the ISM we've seen so far?