Is Trump’s Plan Working? | Mikkel Rosenvold & Andreas Steno Larsen | Macro Mondays

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1:28Hello out there. Welcome to another edition of Macro Mondays. Mondays. My name is Milo Osenhallen and we're sending to you live from Copenhagen. I am joined in the studio by you, Andreas. Just dropped the phone there like a teenage girl. Now it's time to be on. But there was some reasoning to it. Let's just drive straight into the ISM services report. Just fresh out of the of the press. I'm honestly a little bit surprised. It's the second ISM report in a row that surprised us on the upside. And you know, we've obviously been stuck in discussion for the past month on whether these tariffs from Liberation Day would create some sort of at least soft impact on the U.S.

2:10economy. But for now, the U.S. economy, you know, the numbers are not good, but they're not that bad either. You know, so we're talking about some sort of middle ground here where it's not really deteriorating at the pace that most economists would have expected at least given the size of these tariffs and so on and so forth. So, well, it kind of fuels the whole notion that, well, maybe the bottom is already in, which we've basically seen two, three weeks in a row. Yeah, we'll get back to that and dive much more into the status of the US economy, what's actually going on underneath the hood. Remember as always that this is a sneak peek into the analysis and research that we do and publish among other places at Real Vision.

2:50You can get full access to Andreas's thoughts and the publications of our team with the Pro Macro tier subscription plan in there. You just released your steno signals today. That's part of the package. We are releasing the drill every Tuesday with a focus on geopolitics and commodities, especially energy as well. And on Friday, we have an update on the portfolio and what we told hedge funds for the past week. So a lot of good stuff in there. Hi, Raoul here. Listen, I think we've got until 2030 before the economic singularity arrives. Now, it might not be the exact date, but it's around then. so we have about six years to figure out how to unfuck our future i've put together a report to help you called prepare for 2030 it's going to help you take the first steps in that journey to make sure you're secure past 2030 so just click on the link below and start your journey now uh this is our weekly free show where we give you a sneak peek into our view and try and cut through the noises in Global Macro.

3:54Remember our usual catchphrase slash disclaimer that even though we like to think that we're quite thorough in what we do, Andreas, our trade ideas might be... Sometimes it may be good, sometimes it may be shit. That's it. Good old Gennaro. We got a lot of messages on him. I was criticized very much by a listener who was talking and said, you keep bringing on Milan Juventus guys and the podcast. Why no Inter guys? And I'm actually an Inter guy myself. Italian football. So just another little disclaimer there, Andreas. This guy, Gennaro Gattuso, who's basically the guy behind our disclaimer here, almost annihilated a Swiss journalist.

4:42Was it a Croatian journalist the other week? I received that link. I received that link from like hundreds of viewers of this show. He went completely nuts at some journalist. Wonderful. Great, great, great soundbite and audio clip. Very, very poor showmanship here are hosting by me that I hadn't prepared that clip. But anyway, you can find it for yourselves. Andreas, let's get back to macro here. We just touched upon the ISM services report. Perhaps a good link to talk about a tweet today from or truth from Donald Trump. Now moving the terrorist discussion into services space. That's one takeaway from this truth.

5:22We have it on the screen here. The movie industry in America is dying a very fast death. I'm not quite sure the numbers support that, but anyway, he's proposing 100 % tariffs on any and all movies coming into our country that are produced in foreign lands. And Andres, this is where things get tricky because when you're talking goods, you usually have some sort of physical product that you can say, okay, now it's crossed the border. With movies, I mean, back in the days, I remember my father was an operator at a cinema. You would get the movies, like a physical copy of the movies. I don't think you do that anymore, especially via Netflix, etc.

6:00What do you make of this? Why now? Why this focus? I don't know. You know, and that's the honest answer. If you look at a company like Netflix, it's basically been on its tier for a while in equity markets and look at the production origin of many of their series we're talking about maybe 50 % of all of the content in Netflix being produced outside of the US we're talking all park numbers here, right? and let's suppose that Netflix recalls a series in Spain Italy or in Korea. They've done that. I suppose that is essentially what Trump is after here. If it's viewed in the US, perhaps? Potentially, right?

6:51So, it is much trickier to figure out how to, you know, in a proper manner, put tariffs on stuff like this. And ultimately, I think the only way you can do it is to look at the quote-unquote mother company of the production. So, in the case of Netflix, if they record something in local language, I don't think it will be tariffed because it will not be shown in the US, most likely. Not viewed anywhere. Yeah, not viewed. But if they're recording, say, a series around the mafia in Italy in English, I think that will be prone to tariffs. At least that's how I understand it. But you're absolutely spot on, Mikkel.

7:41The point here is that this is the first attempt of actually taxing services crossing borders. It's relatively rare that you do so because it's so difficult. And on top of it, it's actually one of the areas of the economy where you typically see a surplus in the U.S. trade-wise versus, for example, Europe. A huge surplus. Yes. when we're talking movies and the likes, because of Netflix, HBO, etc., we're talking a huge surplus. We don't really have any streaming services in Europe worth mentioning, right? This is really odd in many ways because it kind of it's very out of context given the reciprocal concept that was launched, say, three, four weeks ago, right?

8:33Because reciprocal tariffs on services would basically mean that Europe would have to put tariffs on the US and not vice versa. Which is why I don't really get why this topic is all of a sudden important to the administration. So the point here is and you know, we'll see whether Europe cares to retaliate but they should retaliate on this in my opinion because we're talking about a corner of the economy where there is actually surplus from the US going to the US. There is some symbolic value to this and some political value to this because sort of a stereotypical analysis who in the US would watch a French language niche movie?

9:23The Harvard guys. The university professors on each coast. Perhaps that's the narrative here that if you watch European movies, you're probably not voting for Trump. So this is a tax on the on the Western East Coast leads. I don't know. I don't know where this is coming from. But anyway, huge topic today. And before we get back to the sort of deep diving into the US economy, we have a couple of very, very interesting charts you sent me earlier today. First, let's take this. This is the dollar versus the $7. $7. The Taiwanese dollar. What's this drop-off? We see the end of the curve here. What's going on?

10:06Well, so basically, we've seen two sessions in a row with a much stronger Taiwanese dollar versus the US dollar. We've also seen a stronger Korean won. We've seen a stronger Chinese yuan. We've seen a stronger Japanese yen, etc. versus the US dollar. But this is out of any scope that I've ever seen from the Taiwanese dollar. We're talking about a move of 7-8 standard deviation, something like that, it's a crazy move because it's typically a very stable currency pair. So what's going on? Well, I have a thesis. It's not like we've gotten a lot of flow information out of Taiwan yet, but the Taiwanese life and insurance companies are fairly large.

10:50They have a large pension fund system, which is, by the way, pretty normal in Asia. And we know that many of these institutions have invested in the US on unhatched basis. So basically, if they buy a listed stock or a US treasury, they haven't hedged that to the extent that they've usually done, say, decades back. And we've seen a weaker dollar against many currencies worldwide, basically since Donald Trump started talking about laying off Jay Powell and the whole discussion around whether interest rates needed to be cut in the US and all that happening. but this happens with kind of a time lag to the rest of the world uh and i think uh we're seeing you know in danish we would call it a ketchup effect when when you know when the bottle is off the heinz ketchup bottle uh and then then all of a sudden everyone needs to hedge their dollar exposure at the same time and i basically think that's what's happening here um another thesis is that the US administration is trying to orchestrate trade deals with countries around China, including a weaker dollar versus the local currencies to try and corner China.

12:06And I think there's some merit to that. But Taiwan explicitly stated today, this is not the reason. And, you know, there's an old saying, unless something has been explicitly stated by the Kremlin and Russia do not trust it, right? You know what I mean, right? When you... Explicitly denied. Yeah, sorry. Explicitly denied, right? So when they explicitly deny this, it could be because they're negotiating around this exact topic. I don't know. But the whole point here is that everything we talked about in relation to this trade policy from the US administration that all roads led to a weaker dollar as a consequence of these negotiations, I think it's happening right in front of us right now.

12:49a weaker dollar versus the euro a weaker dollar versus many Asian counterparts it is exactly what the Trump administration wants and they're maybe not telling it explicitly to the public but that is basically the whole purpose of this exercise and it's basically all you need to know when you're an investor right now that they're trying to orchestrate some sort of coordinated easing of the dollar that seems crystal clear right now No matter the reason why the dollar is weakening versus the Taiwanese dollar, it is to some extent linked to this whole terrorist policy negotiation process. And how's that linked, Andreas, to a tweet you made earlier today that the Chinese are now buying U.S.

13:35treasuries again? You saw some signs of that. We have a chat from Hong Kong here as well. How's that linked to that? So, you know, it was kind of a click-baity tweet. But still, there's some merit to it and some substance to it. So we've obviously been stuck in discussions on whether the rest of the world would start selling U.S. treasuries to try and cope with the pressure of the U.S. administration and all the trade negotiations ongoing.

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14:40With a simple and intuitive platform, you can trade anytime, anywhere. Experience the fast, accessible futures trading you've been waiting for with Plus500. With over 20 years of experience, Plus500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus500, it's trading with a plus. the point here is that the dollar is now sufficiently weak for managed currency regimes such as the hong kong dollar to end up in a situation where they need to buy u.s dollars so what you see in the chart here is that the hong kong dollar is managed versus the dollar so when we're at the top of the board it means that the dollar is strong it's against the ceiling and when we're at the very bottom of this chart, we're basically trading at floor levels.

15:34And when we are trading at floor levels in the dollar versus the Hong Kong dollar, they need to buy US dollars to ensure that it doesn't drop below that floor level. When you buy dollars as a foreign central bank, it basically means that you accumulate dollars in your foreign FX reserve. When you have more dollars in your reserve, you need to invest those dollars in something. There you go. U.S. treasuries or potentially gold, right? So the whole exercise, and again, let me just underscore this once again. The whole exercise behind this terrorist plan, at least from a monetary perspective, is to weaken the dollar to allow foreigners to accumulate dollars and buy U.S.

16:22treasuries again. Because they haven't bought any treasuries for a decade, more or less. the amount of foreign ownership is dropping relatively to domestic ownership and that's an issue so I actually think you know despite some despite the global outrage despite you know the flip floppy implementation of all of these attempts to negotiate with the rest of the world I actually think the bottom line is okay-ish for the US administration now and they are I am, yeah, they're doing much better than what is being reported by the media around the world. Absolutely. They seem to be getting away with this.

17:05We're getting signals that they're getting close to some trade deals. And I mean, that's not going to be trade deals in the original or the previous sense of the word, because those took years to do. So these are going to be much, much lighter trade deals, probably aimed at sort of settling this issue, get onto other stuff, probably getting something in return for lowering the tariffs. I just wanted to bring on this chart as well, Andreas, just to finish off the talk in the trade war. We're seeing some stabilization in the level of container ships from China to the US, but we haven't seen a full recovery.

17:43Yeah, tiny pickup if you... Yeah, updated live, tiny, tiny pickup. But there is an early hint that the shipping is actually... So goods are flowing from China to the US? Are these ships are departing to China? You know, a slight tick up. And why so focused on that? Well, I think it was roughly 10 days ago, Chinese state media started writing stories about Walmart, Home Depot, and the likes, telling their counterparts in China to just, you know, send the ships, basically. And I guess, you know, between the lines, you could kind of read that as a growing optimism among executives in these U.S. retailers of some sort of conciliatory outcome of the trade negotiations over the next 30 to 45 days.

18:46It takes a while before you'll reach US stocks, right? With these ships. And that's basically, you know, the ultimate deadline for the customs. So I think what we're seeing right now is a growing optimism that will have some sort of conciliatory outcome, say over the next one or two weeks. Stephen Miran, He went on Bloomberg, I think, on Friday, stating that he would be surprised not to see tariff level lower in one or two weeks from now. So all the signals we're getting points towards a de-escalation or a dial back in some shape or form of tariffs here. Remember, listen, to post your questions wherever you're watching this, whether on YouTube, Twitter, or on Real Vision.

19:35We can take them live on air. I should have mentioned it earlier in the show, but you still have time for that. In any way, Andreas, Mikkel, can I spend one minute more on this dollar Hong Kong chart? Because if we bring it up again, I think this is so important also from the perspective of investing in the US versus outside of the US. What we've seen over the past two or three years is that Chinese monetary authorities, Indian monetary authorities, and other big players in the global South, they've been busy defending their currency against a too strong US dollar. And when they do so, they need to sell US dollars and ultimately also need to sell some of the papers behind their US dollars, namely US treasuries.

20:22The US dollar is incredibly overvalued when you look at it from a purchasing power parity perspective. Various other models of long-term assessments of fair value also put the dollar maybe 10, 15, even 20 % above fair value. So, it was one of the most important tasks for this administration to try and fix that issue. Because obviously, when you have a too strong dollar, and the dollar has been strengthening on a trend basis versus many of these large emerging economies, you just grow and grow and grow your deficit versus these economies because you're getting less and less and less competitive from a foreign exchange perspective, right?

21:03And take a look at the exchange rate versus the R &R, the Indian currency. Take a look at the exchange rate versus the Chinese yuan. It's been one-way traffic for many years. And this is the first time in, yeah, basically since the early innings of the pandemic, that we've actually seen the pressure in the opposite direction. And I think it's very, very important because ultimately it means that financial conditions ease when the dollar softens as it does. it means that these economies worldwide, they gain relative strength from an import perspective, meaning that they can actually buy more in the US relative to what they were able to just a month ago.

21:44And in many ways, it's a very upbeat scenario for the world economy. And think of this, Mikko, in conjunction to this. The oil price is currently in the bin, basically. Over the weekend, OPEC decided to increase production. I know we'll get back to that discussion in a second. But we have the relevant benchmark index in the U.S. for oil below$60. Let's just for a second entertain this thought. We'll get almost a complete dial back on terrorists versus China in an economy that is now fueled with much, much lower input prices from oil, gasoline, many commodities, right? that's a super super upbeat scenario and you know if you read the research from many investment banks right now they're telling you that the world will end because of these tariffs but if you dial back the issue and pair that with input costs that are much lower, a dollar that is much weaker, you have a plethora of opportunity yet so I'm you know I think the economic consensus is damn wrong once again that's basically interesting So essentially, Andreas, we're talking about the terrorist questions.

23:01Is that? Well, probably, yes. As an investor, anyway. And, you know, Trump also took laying Powell off the table again now. And, you know, it's just so typical Trump. You know, he's got away with saying a lot of stuff and, you know, trying to put pressure on people by, you know, publicly announcing that he's considering laying them off. And then he pulls back from it. And, you know, let's see on Wednesday. We obviously have EFOMC coming up. Politics aside, his approval rating is not looking very, very good at the moment. But politics aside seems to have forged a way out of these tariffs. But one thing that's very, very certain is that approval ratings, they lack equity markets and crypto markets.

23:47They do. I remember that, you know, we had three or four years in a row with a weaker Swedish crown. It's in East case, but just underscoring my point on opinion polls. And it weakened and weakened and weakened. And during that time span, all of a sudden, the population in Sweden was in favor of joining the eurozone. They wanted to get the euro because, you know, it was suddenly much more expensive to travel to the rest of Europe. when that tide turned and the Swedish crown started strengthening. We've seen that this year. The opinion polls also started turning. No, no, no. We don't want that shitty currency, right?

24:26Because it's weakening. So opinion polls lack the financial reality in many ways. Because if you're an average Joe, you look at your bank account, you look at your portfolio, right? And it influences your opinion. It just does. So Andres, if we are beyond tariffs now, I know that's a little bit of a stretch, but anyway, maybe we can get back to some honest to God macro analysis here. We touched upon earlier in the show the outlook for the US economy. We had a couple of numbers last week from the non-farm payroll of the ISM. Are we positioned for bull run heading into the summer or what's your expectation?

25:09Yeah, I think so. this is one of the most hated rallies I've seen. And I can guarantee you that a lot of professional investors are not part of the party right now, which is always an issue because if you're a professional investor and you see this sudden comeback, you need to chase it because you're all of a sudden running behind in a sense. So I think it's one of the most hated rallies I've ever seen. And again, we've used this analogy of March 2020. all the way through April. And this feels very much like the market did, say, in April, May 2020, where people are like, ah, this doesn't feel right to buy stuff here, right?

25:54Because we've just had a lockdown and we're still in kind of a lockdown. We're also still in a trade lockdown. Global trade war. Yeah. Between the US and China. But the sequential news from here will be better, which is all you need as an investor, right? You can look through a lot of noise if the news flow is improving. And I guess that's basically where we are. In my opinion, Andres, one of the big jokers to look out for that I'm still very, very uncertain about is are we going to get a rate cut? We had a question from a listener here. What are your takes on the Fed this week? Because this data from last week, does that support a rate cut?

26:34Well, I think I said, was it a week ago, two weeks ago on this show, that the data would provide a crystal clear case for Powell come June. And I still think that's the case. But, you know, we already have a meeting on Wednesday and the data is not crystal clear right now. I have to admit that. So no, on Wednesday, we won't get any major clarity. Especially employment numbers. Yeah. I take it. So by June, they'll have another month of data. And I think the data will be sufficiently soft for them to move in June, yes, even though the market is not convinced right now of the June cut. But, I mean, they're mostly scared of cutting because of tariffs.

27:20And if we slowly but surely get tariffs lowered from here, which is most likely, I think, should be good news for the Federal Reserve. but I think there's a big caveat and that's also one of the questions we get on the board here on services and the risk of retaliation on US cloud services and US AI and I think that question is more or less spot on we're obviously talking about retaliation to this Netflix tariff mentioned initially in the show the European Union holds they don't hold the cards they don't have the cards but they have one card and that is a digital tariff on cloud services because everything related to government data is hosted by a US company ultimately more or less everything you know that as well absolutely absolutely and it's I mean we've had it in the portfolio for a while the European digital infrastructure companies especially doing very, very well.

28:28Extremely well. And this is a case, you can make the point from so many cases. It's a defense issue, national security issue. The U.S. have asked us to take our own security, to take responsibility for that. That includes setting up our own hosting and cloud services, at the very least for government services and defense services. This only strengthens it. If we're beginning to see terrorists on services, why not? So this makes so much sense, this bet, and there's so much tailwind to it still. Yeah, it's actually one of the stocks that haven't really responded to this relief rally, NVIDIA. And I think there's a reason for that.

29:12It's not doing that bad, but it's not rebounding as we've seen other parts of the market. So I think there is some merit to this view that there's a risk that we see retaliation on the digital services front. I still think you should just take a deep breath from the European Union here, because in my view, I still have a feeling that Trump is trying to find a way out of this trade war. And he's trying to make this more about domestic politics. And that's what he's doing here as well. he's trying to because people have this as I mentioned before the stereotype that people watching French movies they're usually living in San Francisco or or his whole war against Harvard I think he's shifting his policy focus the more he puts because he has not his success rate on the foreign on the global stage has been very very poor so I still think at least on the surface but it's they're actually doing better on this whole dollar US Treasury question than what is being reported in many ways.

30:13On a monitor, yeah, absolutely. But, I mean, most voters aren't going to notice that, at least not initially. And you are getting heavy pressure, or Marjorie Taylor Greene. You can laugh at it all you want, but she has a bellwether for how the Republican base is feeling about things. She's not criticizing Trump in any way, but she's criticizing his administration for not getting any of these wars stopped and getting Trump involved in more wars. So there is a bit of positioning within the Republican Party because they're going to the polls much sooner than Trump is or Trump's successor is. So anyway, very, very interesting from a political standpoint.