Macro Monday: Trump Pulls the Tariff Trigger ft. Andreas Steno Larsen & Mikkel Rosenvold

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1:45Hello, everyone, and welcome to another edition of Macro Mondays. Once again, we have a completely bonkers agenda to talk about in global macro. with me, of course, as usual, Andreas Deno. Andreas, welcome home from Miami. Thank you very much. And to all of you out there tuning in, thank you very much for being in Miami. For those of you who attended, it was such a pleasure to meet all of you in person again. And yeah, what a volatile weekend we had, both in the bar and in financial markets. Once again, I assume you had a great flight home from Miami with all the stuff that's been going on today, Andreas, this morning.

2:26As always, remember, this is our free show on Real Vision and on various platforms. To check out all our content, you can go to Real Vision and check out the Pro Macro tier. That's where you'll find Andreas' weekly StenoSignals article. You'll find our article on everything we tell hedge funds, essentially, and a lot of other coverage on global macro. Remember, this is a sneak peek into our thinking. We sometimes like to talk about and post various trade ideas. So remember our usual cat phrase that all our traders, years-northos, suggestions might be. Sometimes it may be good, sometimes it may be shit.

3:05Exactly. That's generic atusa for you. So, Andreas, once again, we have a completely breaking news Monday. Tariffs all over the place. Shifting gear this afternoon, we'll get back to that. Should we just start by addressing what we talked about last week because I had a whole segment on that, on DeepSeek. It seems like that's completely old news now to what? Was that last week? Yeah, AI. Like an age ago. You know, so, Mikkel, I had plenty of discussions on DeepSeek during the past three, four days, also with subject matter experts. I do not consider myself a subject matter expert, but we obviously have our CTO to consult with as well.

3:50and it seems like the consensus is shifting away from DeepSeek being a major breakthrough to being a minor breakthrough, if you know what I mean, especially since the training has been allegedly conducted on sort of a pool of data from the open AI chat GPT model, right? So I'm personally not overly worried about this story anymore. Maybe it was actually the catalyst for the 10 % tariffs that we still do not know whether will be implemented on China or not. But the sort of foundational layer of this story from an AI perspective is still net-net bullish, but not massively bearish for NVIDIA anymore, in my opinion.

4:40So let's get to the next topic, right? Yeah, absolutely. This wasn't a cycle breaker. Perhaps this is, I just want to show this meme, the meme of the week. You posted this of Justin Trudeau. I'm going to tariff you back. So, Andres, I thought we were going to talk trade war. And then like 15, 20 minutes ago, it seems like everything's been postponed. Let's try and cut through all the noise here. So just to wrap up what's been happening over the weekend, we got increased chatter over these suggested tariffs from the U.S. on both China and Mexico, as well as Canada and Mexico, as well as China. And today, Monday, it seems like Trump has been holding calls, both with Trudeau and Claudio Schoenbaum, and has postponed these tariffs.

5:31Or what did you hear? Well, he's kind of officially confirmed that the tariffs are postponed after a talk with Claudia Scheinbaum. So the tariffs on Mexico are postponed. What we know right now as we speak is that he'll call up Trudeau again. I think it's at 3 p.m. Eastern time. So we basically don't know what will happen with the Canadian tariffs. My best guess right now, if I should give you a live guess, is that they will be postponed as well. They'll find some sort of solution or excuse to postpone them. And, you know, it's been back and forth all day. I stayed up all night on the flight from Miami to Copenhagen.

6:19I tried to figure out what was going on. Asia traded very, very heavy. The dollar was extremely bit already when the FX market opened in Wellington hours. And, you know, I had a lot of hedge funds on the line while I was sitting there in the flight. asking me, okay, how do you express a strong dollar when the market opens here? And I kept saying to them, well, we've seen so much flip-flopping on this topic already. I kind of get the sense that this is a bad story for the dollar by the end of the day, because remember 2017, the summer of turbulence in the White House, Scaramucci in and out in 14 days or whatever it was, The dollar ended up as a very weak currency during that time span.

7:07And I'm kind of left with the same vibe now that this lack of direction, basically, going from one extreme to the other on tariffs overnight. It leaves the dollar vulnerable to some sort of rest of the world attack on it. And that would ultimately be okay news, broadly speaking, if the dollar softened up. We basically have a very, very strong economy going on globally. The momentum has been exceptionally good for a while, say over the past six, eight weeks, when we set all of this noise around tariffs aside. And Miguel, you can rest assured, and I'd obviously like your take on it as you've stayed home and talked to our clients, right?

7:50But I have had plenty of discussions in Miami on these tariffs and Trump's behavior and all of that. And, you know, I tried to sort of convey the message that, you know, and I sincerely mean it when I say it. Objectively speaking, I think Trump is doing a decent job on the economy, but we're getting annoyed of him outside of the U.S. because of this lack of direction. For many reasons. Yeah. And the sentiment is extremely bad on Trump outside of the U.S. for good reasons. Um, so, so it's something to bear in mind if you're an American investing in dollar instruments that, uh, for, um, like the foreign portfolio manager crowd, um, is getting increasingly tired of this turbulence.

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10:11So I think, Andres, just to take myself and you, we're probably in the 5 % to 10 % of the Danish population that are not necessarily pro-Trump, but are not staunchly anti-Trump necessarily. I fully agree. But that's getting very, very hard. Obviously, Denmark is a bit of a special case because of Greenland, but all over the West, it's getting very, very hard to defend Donald Trump. It's getting very, very hard to try and defend some of his policies because it seems so erratic, it seems so random. And he's throwing his weight around at the expense of markets, at the expense of a lot of lots of other countries.

10:47I mean, he might be gaining some short-term wins over this. He might be gaining some Mexican soldiers on the border, keeping out drugs, keeping out immigrants. But what's the long-term picture here? Who's he going to call the next time the U.S. wants to invade some Middle Eastern countries? He's going to call Denmark? He's going to call Mexico, Canada for help? This is not the way you build long-term friendship and relationships. And obviously, that doesn't matter to Trump. He doesn't care, essentially. But, I mean, Andres, let's just try and understand what's going on here. and then we'll just in a minute I want to ask you too the inflationary effects of these tariffs just because they're still in place and we still need to kind of grasp these so let's start with Trump's intentions do you think was this a bluff all along because now they've been postponed are they not ready to implement them what do you think I know this is guesswork I got a lot of questions from both PMs but also corporate treasurers on how this would be implemented basically on Tuesday right and my answer was, well, I don't know.

11:51It's a very, very tight deadline, right? And of course, if you just add like a one-size-fits-all import tariff on everything, then it's pretty easy to maneuver, I guess. But what about all of the goods produced with subcomponents from China in various other countries? Do they want to try and tariff those? It's very difficult to do, right? If, let's say, Canada imports stuff from China and then, you know, manufactures a product based on those subcomponents and then exports that product to the US, will that be tariffed? Yes, ultimately because it's Canada, but if it was another destination without those tariffs implemented, it wouldn't be tariffed.

12:34So it's very, very difficult to set this up without some sort of universal setup, which is why, you know, was it a week or two ago, Scott Pearson started talking about this universal, slow buildup of universal tariffs, right? And I think that's a much better plan if they actually want to increase tariffs. While I see these bilateral tariff threats as mainly a negotiation tool, and we've basically somewhat gotten that proven again today. Yeah, I would say so. If I were China, I would probably say, okay, yeah, let's figure out what we can offer in return and get those 10 % off again, right? So maybe by the end of the day, tariffs will not be implemented outside of maybe some smaller universal ones.

13:22So, you know, all of the fuss during the weekend and all of the turmoil, NASDAQ down 3 % on the open this morning and all of that for nothing. And I mean, Andres, essentially, I know everyone is now a trade wars expert, is now a tariffs expert. No one knows what the fuck is going to happen once you implement these tariffs. Exactly. We have some ideas. We'll get back to that. But I mean, if today was a test run, because we thought the tariffs were going to come. So today was a test run on markets. And bam, you got one and a half points clipped off or even more clipped off US equities. If that's the reaction to expect whenever you implement new tariffs, that makes it a whole lot less realistic for the US to use.

14:11I mean, if Trump knows that every time he issues new major tariffs, if he gets an immediate cut in U.S. equities, that makes it much less attractive for him to implement tariffs. So it raises the cost, essentially, because this we now know from this test run that markets don't like this. I mean, investors don't like this. So, I mean, at least we've had that test run, I think. You haven't even mentioned the elephant in the room, crypto here, right? Trump coin was absolutely slaughtered based on this news. Some of the old coins had a very, very rough morning. Bitcoin is holding up okay. But, you know, I think ultimately a lot of people also supported the Trump case based on the prospects for crypto.

14:59And, you know, it wasn't really what they hoped for. But in any case, and I have to admit to that, the sentiment that I could sort of assess coming out of Florida and Miami last week, you know, it's still very supportive. And, you know, I have to acknowledge and accept that the sentiment among those voters is in favor of really trying to do something unorthodox to solve the voter issue, to solve the fentanyl issue and all of that, because it's very much needed and I get that. There's just a limit to how far you can take this against your allies, in my opinion, without suffering from repercussions of, for example, weaker dollar markets, crypto sell-offs and all that.

15:53And it seems, Andreas, as we move towards cutting through the noise here and getting into the actual economy, stuff being bought and sold all over the place, It seems like investors are sending a message to Trump of things are going well. Don't fucking rock the boat too much here. I mean, we're doing quite well. Stop sending all these threats. I just want to throw in an audience question here. Great one from Jonas here. As a European investor, what is the chance of waking up one Monday to capital tax on investments to the U.S., either issued by Europe in retaliation to tariffs or perhaps issued by the U.S.

16:31itself in an effort to... to get the dollar even lower. Yeah, and you know, it's one of those feasible scenarios that I've thought through. And as far as I'm concerned, it's not up there on the list of retaliatory measures day one, but it's certainly something that they're looking into. So take the example of the European Commission deciding to issue some sort of capital tax on investing in the US, that would lead to a material repatriation of flows back to Europe. If we saw something similar from Japan or China or the likes, again, really bad news. Remember that, you know, for good reasons, the rest of the world kept investing into the US economy through Trump's first era, through the Biden era, actually, and also in the beginning of this Trump era.

17:32but it's not a given that people from outside of the US will continue if the environment becomes too hostile, right? And I think that is essentially the strongest or the best bargaining chip from the rest of the world. You know, we hold a lot of treasuries. We hold a lot of NASDAQ stocks, etc. You could sell them, see what happens in case things escalate. But fingers crossed that we're not getting there. My base case is still that Trump wanted to send a strong signal that the deadline was right around the corner to get some response out of the Mexican and the Canadian administration. And he's basically gotten what he wanted from the Mexican administration.

18:14So kudos to him for that. We could have probably gotten there without all of the theater, but still, the end game is okay. And I think that's what you need to take a step back, breathe easy. The end game is okay here. That's still my overwhelming base case. And I'd like to show this chart. Yeah, exactly. So trying to cut through all the Trump noise here, the actual economy, stuff being produced and sold and bought. What's the momentum looking like for you here, Andres? Yes. So we had the ISM manufacturing report at 10 a.m. Eastern, right in between all of these tariff headlines. Fantastic development in new orders.

19:06Inventories are relatively low, which was a bit of a surprise to me given all of the tariff chatter. So basically, with orders coming up and inventories being low to begin with, we're talking about an economy that is building momentum because you both need to produce the new orders, but you also need to bring in new inventory. Yeah, and the chart here is showing how the spread between orders and inventory is leading the overall momentum of the ISM Manufacturing Index. We're going up. We're going up almost, I'd say almost, no matter what Trump does on tariffs. If he leans back a little bit and allows the economy to flourish here, we'll have a very, very strong 25 ahead of us.

19:51So again, breathe easy, take a step back. The manufacturing cycle is doing better. It's good for cyclical equities. It's good for altcoins. It's good for the overall cyclical development of the economy and all that. in between all of the tariff headlines. So Andreas, speaking of the underlying economy here, a question from Bernardo Reyes here. Are you disappointed that macro meets micro won't go live? I would like both Andreas and Mike's opinion on this important topic. For those of you who don't know, I keep reiterating the threat. That is basically my bargaining chip here of opening an OnlyFans account called Micro meets Macro if Eurodollar breaks below one.

20:38And it's probably the most effective barrier option out there because every time I tweet it, Eurodollar picks up again. No one wants it, basically. So again, it worked. I even wrote it out to all of the members of the ProMac Quartier, etc. that, yeah, you need to buy Eurodollar again. Sorry, lads. I have to say, avoid my nudes. You're sitting in our studio. I always had the idea that we could use that studio to shoot OnlyFans videos, but perhaps a lot of ourselves. Let's keep it out of that. People can suggest other people to put in those videos. I just want to get to a question from YouTube. We're getting a lot of good audience questions today, Andres.

21:22This is a broader one from Peter. Thanks for a great show. What's it going to take for Europe to get our thump out of our bottoms and start focusing on our growth and strength? tariffs? Well, I think this is kind of a moment of truth in many ways because obviously Europe needs to find a way out of the low-growth environment without the help of the US because the US will not be there to aid that development in any major way. That's kind of also the signal we get from Trump, right? So Europe will have to, you know, cut red tape, do all of the stuff that Trump is good at doing in the US. And I'm not particularly optimistic on the European economy's behalf.

22:11But at the same time, I'll also say that European assets are not overly expensively valued, right? So if you look at the development through January, I think the German DAX index was up 10%. It was probably one of the best performing equity indices on earth. So there is some momentum beneath the hood in Europe from very weak levels, despite all of this. But you could see this as both a blessing and a curse, in a sense, this whole tariffs discussion. But if Europe is up for the task, this is obviously timing to use, to design new policies, to deregulate, caught red tape, and all of that, allow the banking system to flourish again.

22:59European banks have actually traded very well recently. And maybe that brings me to a couple of high conviction themes and traits here, maybe because, you know, we still don't know on tariffs. A base case being that this is some sort of negotiation tactic still. Maybe we'll get some smaller universal tariffs that we can actually deal with. But in any case, it looks like gold is an extremely good trade right now. both in an environment where tariffs are added and in an environment where the dollar weakens a little bit because tariffs are not added. So I kind of like that in all scenarios. I think being short the dollar versus the Japanese yen is another strong conviction here, especially since bond yields look peakish.

23:51We've said that a few weeks in a row now, starting to look okay-ish, that trade. And then, you know, the big question, and I've received that question from tons of family offices over the weekend, will we see a slight rotation from Bitcoin into gold on this? I wouldn't rule that out because, you know, gold feels maybe slightly better equipped to deal with this kind of hostile trading negotiation environment. So I think that's on the margin a decent idea. then if you look at what works if the manufacturing cycle picks up we just got the evidence at 10am again today the ISM figure was better than expected the cycle between orders and inventories is improving everything you need to see in an accelerating economy stuff like materials banks etc.

24:49cyclical equities they do pretty well in this kind of setup So I'm not overly concerned. That's still a message I want to convey out there that as long as the cycle is actually improving beneath the hood, we still have positive developments in M2, like broader money growth measures. Things will develop in an orderly way in between all of this noise. And it's just a matter of staying alive through those days where it feels like everything will go south and ultimately it ends up not going south anyway. And, you know, I just have to admit to that, right? Just had a discussion with a couple of my PMs before going into the studio.

25:31You know, we're basically at risk of looking like fools again at 3 p.m. after the chat with Justin Trudeau, right? Maybe they don't agree. I don't know. It's very, very difficult to time these headlines. So maybe the best piece of advice right now is to try and avoid reading them. Study the underlying cycle and put on some trades that can actually swallow a bit of turbulence around this tariff story. Yeah, touch grass, as Raul put it. Just one more question here, Andreas, from YouTube as well. You've been tweeting a bit about the, this gets a little bit more theoretical, but on the possible tariffs, you've been tweeting about whether they will have an inflationary or disinflationary effect.

26:24Could you just take us through that logic? Because for me, it would be logic to assume an inflationary effect simply because you put a tariff on top of prices. Sure. Well, obviously, with, for example, net gas prices in Maine, they're dependent on net gas flowing from Canada to the US. So if you add a tariff on top of that net gas flow, you'll have to increase the price of net gas for your end consumer in Maine. So that's a very crystal clear example of an inflationary impact. But remember, and for good and for bad, this is how inflation is calculated, right? You measure inflation against the year ago.

27:07So if you add a tariff, it's a one-off and nothing happens from there. The question is, is a tariff inflationary after that one-off? Because the one-off is there. You cannot really discuss that. And typically what we see is that inflation starts dropping after that one-off. Basically meaning that the impact of tariffs is over time slightly disinflationary compared to the initial impact. So the same thing in 2017, 2018. And, you know, there are plenty of reasons why that is. First of all, because there is a growth impact. When you distort trade flows, you typically see a negative growth impact.

27:48That's the first thing. You typically also see a reshuffling of trade flows to avoid tariffs. So sure, tariffs were added on China back in 2017, 2018. But look at the statistics on export imports from Brazil, Mexico, etc. A lot of these goods flows, they were just rerouted basically. And that's, again, this time around with the negotiations we've seen with Mexico and Canada been my main objection against those being a good idea. Because, I mean, you can find smart ways of circumventing them basically, right? If you know what I mean. it's not difficult to find a middleman in global trade. It was, but it's no longer the case.

28:42And to give you the best example, right? Look at German exports to, is it called Kyrgyzstan? Kyrgyzstan, yes, exactly, yeah. So after the Russia-Ukraine war commenced, after the export embargoes and all that were put in place, we all of a sudden got a massive pickup of exports from Germany to some of these surrounding countries around Russia and you know it's not because they're driving by a regime in those countries or Audis or whatever right it's because Germany is exporting to Russia via some sort of middleman solution there you go I've got the chart right here. Just pulled it up a little bit rough, but this is a German-Kyrgyzstan trade.

29:34The last few years, obviously, been 22 and 23. So this is a great example. Two countries that hardly traded together. And once there was trade that needed to find a way, this was the way trade will find such ways of getting back and forth. So that's actually why, Mikkel, that's why I think there is some merit to this universal tariff solution, suggested by Scott Besson, right? So adding a couple of percentage points a month on everything and everyone. That works when you isolate the effects to a couple of trade partners. They'll just find ways of getting the goods to the U.S. anyway. Yes, and that will mean that production will have to move inside the U.S.