Macro Monday: Why Reciprocal Tariffs are GOOD News ft. Andreas Steno & Mikkel Rosenvold

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1:30another edition of Macro Mondays presented by Real Vision. My name is Mikkel Rosenwald and I'm your host for today. As usual, alongside you, Andreas, welcome to the show. Cheers. Thank you, Mikkel. We have a great show for you today. Remember that this is a sneak peek into the analysis that we do at Real Vision. To get full access, you need to sign up for the Pro Macro Package, which involves both your weekly editorial, a piece on geopolitics and commodities. We have a weekly preview, which we release every Monday called We Get a Glance. And this is sort of a sneak peek into some of the analysis that we do.

2:08Also remember that we have two upcoming shows this week, actually. We're doing the Pro Macro Talk with Rahul on Wednesday. And on Thursday, I'm hosting the great Jacob Shapiro for a talk on geopolitics. So a whole lot to look forward to this week, Andreas. It's been another exciting week. and I want to start off in something completely unrelated to macro. Okay. There is a Danish phrase, I know you and I love to use it, called a ramp. Yeah. You know what that means? Yeah. You and I both have some versions of it. It's a bit easier to see if we take off these headphones. It's, of course, the haircuts I'm talking about because, Andreas, you were really, really, really excited to see the haircut of Howard Lutnick when he was in the Oval Office here.

2:57It's sort of, the ramp is obviously the slick, what do you call it, turned back here. Howard Ludding has the one that begins, I don't know what it's called, in the middle, sort of right on the apex of the head, and then goes back. It's a little bit easier to see in this picture, perhaps. It's one that I really, really like. He has great teeth, by the way, also. A lot of great ramps in this Trump administration. You've got to love this guy, because he's not giving up. No. And, you know, I would probably have given up quite a while ago if I were him. But, you know, kudos to him, you know. Absolutely.

3:34Especially the, you know, the clip where he's laughing in the background when Trump signs the executive order on plastic, whatever it was. And, you know, he's just laughing there. And his hair is just jumping around in his neck. You're going to love it. He hangs on by a thread there. I've got a couple of others here. You get to decide the best one. This is Pete Navarro, the president's advisor. Almost into what we might call a seagull. Very popular among footballers in the 90s. Also hanging on there. The McDonald's logo. Yeah, exactly. Probably the winner right now is this guy, Scott Best. Yes.

4:10This is a great, great, great ramp, as we would call it. Also loving the salt and pepper coloring in there. It's more like a Gryffindor cut than a Slytherin cut, right? If you know what I mean. absolutely that that's an incredible picture by the way yeah incredible mock shot or official shot obviously none of them living up to the great anthony scaramucci of the past trump administration so uh give us your inputs out there who who did we miss of the greatest haircuts uh uh in the trump administration we miss baron that's true yeah that's true that's a great one No one gets to see it because it's so big.

4:50You know, the haircut that he donned during the inauguration, that haircut would have survived the hurricane. I've never seen so much gel in hair before. It was amusing. That's another decision. Are we more into the wet ramps or the dry ramps? That's Scaramucci very much in the dry camp of that one. Anyway, Andres, let's get on with the macro before we get to talk about people's hairs here. But it's great to see. You wrote a piece yesterday, reciprocal tariffs are actually good. What on earth do you mean by that? Okay, I think we kind of mentioned it a week ago that there's a potential for these reciprocal tariffs to orchestrate some sort of raise to the bottom on tariffs globally.

5:41And over this weekend, Trump explicitly stated that if counterparts bring down their tariffs and their VAT rates, then the U.S. will do nothing or maybe even lower their tariffs and sales tax rates, right? So I guess this is an offer basically to the rest of the world. Why don't you cut taxes? Why don't you cut tariffs? And we'll do nothing. And as I said last week as well, Trump's analysis is right in the sense that the average tariff applied on U.S. goods, leaving the U.S. and crossing a border outside of the U.S. is much higher than the equivalent tariff the other way around. so he's basically trying to create some sort of level playing field on global trade and i think you'll get one at least to some extent right if you're uh modi so and you're running the business of india so to speak right and you're currently stuck with tariffs that are say five to six times as high as the equivalent tariffs in the u.s and you get this message right will put a tariff on you unless you cut your tariff to the same level that we have against you.

7:05What would be your response? Would you increase your tariffs? I don't think so, really, right? So I actually think that there's an end game here that is pretty positive. Of course, there will be some noise in between and loads of headlines and some hostile negotiations potentially, but the end game is good. Yeah, especially for the countries that are more reliant on exporting to the US than importing from the US. Most countries are obviously relying on both because there's some tech you can only get in the US. But if it's a backbone to your economy that you're exporting either goods or services to the US, then this sounds like a no-brainer.

7:39Hi, 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. I was a bit surprised by this VAT thing because we're very, very big on VAT in Europe. And apparently Trump plans to include VAT in the calculation of what he considers to be tariffs.

8:19Yeah. That's going to be tricky for the EU to pull down because taxation and VAT is not part of the EU mandate. No, it's a national mandate. It's a national mandate. Just like in the States, you have federal sales tax and you have statewide, countywide sales tax, exactly. So it's going to be very, very hard to bring them down across the board. But it's going to be part of the negotiation. Maybe, Mikkel, we can show the overview of the levels that we are faced with across the globe in terms of tariffs. I did this overview yesterday, right? And if you look at China to begin with, at the top of the table here, China is actually in a pretty benign, almost a sweet spot here due to what has already happened, right?

9:02Because if you look at China, they received this 10 % addition to tariffs. That was it a few weeks ago from Trump. It is already in place. And if you look at their sales tax, value-added tax, call it whatever you want, it's relatively low compared to Europe, for example. and if you look at the average applied tariffs rate to the left in the table, we're also talking about an average tariff rate that is not too far off what you see in the US. So at least if you take this calculation at face value, we're talking maybe maximum a handful of percentage points between the US and China, and they already imposed 10%.

9:39So, I mean, I don't think tariffs will be implemented on China from here. At least if you take what Trump said at face value, they will not impose further additions to the tariffs on China. So China is looking good, at least from this perspective, right? Then you have India just below that. Terrible, right? More or less the highest tariffs on earth. Relatively high value-added taxation as well. So if you calculate the spread between India and the US, they'll probably face tariffs of... Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet.

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10:57With 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. Yeah, 10-15 % at least as a retaliatory measure. Then you got the US just below that, just for comparison, right? And, you know, I tried to calculate the average sales tax in the US. It's a bit tricky, but we're talking 6-7%, something like that. And you need to compare that to the UK and the European Union just below with value-added taxation at 20-25-ish.

11:40That's a huge gap. That would be equal to a tariff of, say, 15 %-ish on Europe overall. That's pretty big. But, you know, maybe there's a scope for the European Union to make some sort of a deal with the U.S. here, especially given everything that's ongoing in Ukraine. Absolutely. And, you know, we've already seen rumors around a military package being mauled by the European leadership. So basically, you can call it an aid package to the defense sector across the union. Obviously, that is something that is probably designed to tee up the negotiations around who's going to put boots on the ground in Ukraine and all of that.

12:28So I don't know whether you have a take on that, Mikkel. Can Europe orchestrate a deal on trade via some sort of defense deal in Ukraine, if you know what I mean? That's my thought here. I think we have three things in play that can be packaged together in some sort of US-EU deal or Europe deal, as you'd rather say. So you have tariffs. You have Ukraine. Trump is very clearly pushing his Ukraine plan. He's pushing toward an Easter truce. That's by the end of April. I think it's very, very realistic that he gets that done. Obviously, he can always get derailed. But I think he's looking very realistic.

13:05They're into very serious talks with the Russians. We'll delve into more of this in our show on Thursday, but it looks very, very serious. The Europeans are not invited to the table, but still have a very important role to play in this. I'll just try and find this image from the Daily Mirror. It's a good overview. We're not 100 % sure of all the details here, but the idea is essentially to freeze the current front lines, some minor adjustments back and forth, and then have EU and UK soldiers guarding that front line in exchange for Ukraine not joining NATO. So this means that Ukraine will not be able to join NATO.

13:39They will have the second best things, which is European soldiers manning the border crossings, essentially, which makes it very, very hard for Russia to do any more, gives Ukraine a lot of security. But obviously, this is a huge task for the European Union. We're talking 50, maybe 100 ,000 men in uniform down here. and it's going to take a lot of military purchases, which goes into the Ryan Mattel trade you've been pushing for Real Vision users as well. The third thing here, and that's also extremely relevant to the VAT, is the tech sector. J.D. Vance spent quite a bit of his Munich speech on the tech sector and how the EU is issuing censorship, is limiting the tech sector, is limiting AI.

14:30I think it's very, very possible that some sort of VAT decreases or special statuses for the major tech companies, the big social media in Europe could be in place, could be a part of these negotiations. It could be exemptions from some of the EU data regulations, etc. It would be a huge setback for the EU, but that might be what it takes to avoid huge U.S. tariffs, essentially. So very, very interesting to see. And I just wanted to focus on a couple of other charts we've been doing on the effects of tariffs that's already seen in markets. People are front-running it. One example is the divergence between bond yields and oil, where you essentially label this a tariffs premium.

15:19Yeah, okay. So let me put it like this, right? If I'm right, that we're basically in the very early innings of some sort of global race to the bottom on tariffs, right? And these reciprocal tariffs ending up being a nothing burger in terms of the economic effects and all that, then the market is basically caught wrong-footed ultimately, because there's clearly a tariffs premium in bond yields. So the spread between everything traded on exchange in relation to energy inflation swaps and such stuff is that they're trading very far off what we see in bond yields right now. And, you know, if we take the typical correlation between oil and 10-year bond yields at face value, we should probably trade closer to 4 % in the 10-year bond yield in the US while we're trading 50 basis points above that-ish.

16:13So I think there's a scope for bond yields to come lower into this April truth in Ukraine and with a kind of standstill on tariffs, nothing implemented as long as we negotiate and all of that, right? And the dollar is also starting to sell off against some of the peers, right, especially versus the Japanese yen, another trade that we flagged and made money on. So I think overall, this is starting to resemble or look, it's starting to look reminiscent of what happened in 2017, basically. Remember when Trump took office back then, you know, he's an eager beaver by nature, right? He wants everything done during the first quarter of his presidency.

16:55And then he wants to play golf for the rest of his presidency. That's how we, you know, I'm exaggerating things, but, you know, that's how a typical CEO works, right? loads of executive orders, strategic direction visions, and then it's up to his staff to solve it. To implement stuff, yeah. And we'll get all of his strategic visions laid out now. And then as soon as we have all of those fears backed into the market, we'll slowly but surely see a return to fair value, basically. And I think that was what happened in 2017 as well. The dollar started weakening. Bond yields started coming lower. alongside Trump sort of leaning back a little bit after all of his early messages.

17:41And that's ultimately very good news for risk-taking as well, in my opinion, if the dollar weakens and if the terrorist premium is priced out. So one major factor in that, Andreas, is the fiscal deficit of the US. You just mentioned that Trump is looking to get everything done quickly. We know that Doge has a two-year mandate, essentially, can be changed obviously it seems like we're already seeing some effects from it we are and I know this this is a slight chart crime let me just disclaim that up front because a couple of people already got annoyed with this chart after I showed it in some of the research pieces that we've written but the point here is that since the inauguration we've actually seen a change of trend in the fiscal deficit.

18:34It is partially driven by seasonality and tax receipts. But if you detrend this, and this is a statistical exercise, we're talking about a larger positive trend compared to 12 months ago. So, you know, I'm pretty sure that they're onto something with this Doge project. My best guess is that they've managed to remove$50 billion-ish from the budget deficit already in three weeks. I mean, that's a lot. That's nothing to speak. So, I mean, take a live look at the listed prices of real estate in Washington, D.C. It's a landslide. And, you know, we're laughing, but, you know, they're cutting expenses at least.

19:24And it's very, very visible. So no matter whether you like this Doge project or not, I have sympathy for it, but it's changing the direction of the deficit a little bit here. And after months in a row with negative news on this deficit, this is exactly what the bond market needs right now to calm down. And Scott Besant, the guy we basically gave the trophy of the best haircut in the administration right now, He's also calming markets down with this rhetoric, right? No increase to the long-end bond issuance. That was his first message to markets. His second message to markets was that we're looking to bring long-term bond deals down.

20:11Very calm guy. And I think he's maneuvering things well so far. So much better results here than in his hedge fund. at least to turn this curve around. It's obviously very, very significant. To make major headway in this, you probably need to cut into mandatory spending, as we've talked about. And that's going to be the big challenge, I think, here, but also where the big potential lies. So very, very interesting to see some actual results. This is going to be a chart that Donald Trump loves. I mean, it so clearly cuts off on this inauguration, even though it's maybe not completely fair, as you mentioned.

20:47But anyway, it's going to be a great looking chart for him. Yeah, I was kind of hoping for him to retweet it, but he never did. Okay, Andreas, we've got a bunch of important numbers coming up next week. We'll get to that in a minute. I just wanted to touch upon a number of interesting charts you put up. We'll discuss some of them more in detail on Wednesday as well. You had one on soft commodities. But don't talk too much about that. you have this one on I think it's sugar right? Yes and it's actually breaking higher now the sugar price you could have shown a similar chart on corn for example or wheat and to some extent soybeans so I think this is a clear sign that the dollar pressure is weakening now or is softening because soft commodities obviously trade in dollars so if you get a softer the dollar, it leads to a larger demand for these soft commodities as they're measured in dollars, right?

21:50From the rest of the world, basically. And I think it is an overlooked detail in the negotiations between the US and the rest of the world that Donald Trump wants to export some farm products. The US is actually not particularly good at exporting farm products for a lot of reasons, especially as import tariffs are incredibly high on especially farm products, even in your area where I showed you earlier that import tariffs are not particularly high. But Europe is trying to safeguard its own farming sector. India is trying to safeguard its own production of food. We're starting to see the same in some other Asian countries.

22:33So this is a battlefield in many ways. And if they start exporting more and the dollar softens alongside it, it's a big bull flag for the local traded commodity prices of sugar, soybeans, et cetera, in the US. So this is one of the things that we see as a great theme of 2025 now, that we'll get some sort of return to normal in food prices, especially the traded ones. because, for example, wheat is trading at very low levels compared to what we saw 21, 22, 23. Same goes to a large extent for corn, right? So I'm not necessarily scared of the inflation impact on households and all of that, but I think it's a very good trade here.

23:22Okay, Sandres, one very big topping on X right now is gold. Everyone and their mother seems to be buying either physical gold or talking about Kruger Rams or what have we. I think this chart is very, very interesting. The gold inventory data, you tweeted that once this tops, you should get the hell out of it. Sure. I mean, this is the physical storage data from the COMEX exchange in the US. And it's just out of the ordinary to see so much physical gold on vault there. So, I mean, to me, it's a symptom of private banking advisors telling their high net worth individual clients to bring the gold to the US in anticipation of tariffs, right?

24:08Typically this gold would be stored in Switzerland or London or whatever, right? So across the pond. And the trend is extreme right now. Gold had a bad Friday, but we're starting to rebound today again. And I think the market is sort of honed in on the 3K strike, right? $3 ,000 for gold. I think we'll get there within a week or two. and then I'll probably consider whether to exit this. There's a final window here before the tariff negotiations conclude, right? After that, you have some clarity and I think the storytelling is no longer as solid around this gold trade. And we know that gold is very sentiment driven trade, right?

24:51It's hard to explain it with fundamentals. So, you know, currently we're seeing a lot of positive storytelling around gold, to some extent silver as well, but also other metals. When I went to the US a few weeks back, every single commercial in the taxi was about gold and silver. We don't have such commercials here. I can guarantee you that. So there is a very, very strong storytelling around gold right now due to tariffs. So utilize this last window of opportunity and then I think we'll have a sort of sideways period for metals after that. Before we get to some of the numbers this week and how we preview those, remember out there to post your questions, whether you're watching on Real Vision X or YouTube or wherever, please post your questions.

25:40If we don't get around them today, we will have time for a few, but if we don't, we can also pick them up in the Pro Macro Talk. Then you have to sign up to get the answer, but that's how it is. But Miguel, one of the things that I'm, you know, stuck in negotiations with myself about, basically is whether to buy the gold miners. Yeah. Because for once, there is actually a growing margin for these gold miners. Otherwise, it's been, you know, on a trend basis, it's not been a strong trade despite gold going up, right? Because the margin that they get from harvesting the gold has been, you know, under pressure over time.

26:15But for now, we're actually seeing a decent widening of the margin. So I think there's a decent catch-up trade left in miners. as well. We've traded a few ourselves and we'll obviously discuss some of those single names in the Pro Insider Talks on Wednesday. I think that's a good place to look right now for some late value in this gold bet. Very, very interesting, Andres. Let's talk about this week that we've just entered. We're getting a bunch of numbers from the UK, so I just wanted to touch upon, it's been a while since we touched upon our regime model for the UK. How How are things looking over there?

26:54It's actually the only major economy on earth not having momentum right now, in my opinion. You know, Keir Starmer and his administration is off to a terrible start. And if you look at approval ratings and stuff like that, they're basically on the floor, if not through the floor. It looks as bad as it did for the conservatives before they are basically called for an election. So I think we're into some sort of permanent political crisis in the US, sorry, in the UK here. And maybe if we get snap elections, I'm not sure whether it's in play, but, you know, they'll probably try to avoid them. But then all of a sudden we have this new party reform in the mix.

27:41And currently they're polling as the biggest party. Not sure whether they're anywhere near getting a majority. There is a big difference between being the biggest party and getting a majority in the UK, even in this first-past-the-post system. But it's probably the economy that deals with the most political uncertainty right now. And on top of that, when we talk about tariffs and trade frictions, the UK is an obvious vulnerable target as the UK is very dependent on imports, on everything from energy to food. I mean, the UK wouldn't survive a week without imports. It's an absolute catastrophe. They have a five-day storage of Nat gas.

28:24You know, I mean, we're very far from it right now, and especially with the peace talks, right? But in the Third World War, I certainly wouldn't put my money on the UK, given how they've constructed their imports and exports right now. So I think that's why you see a weak performance of the economy right now, that it's very vulnerable to these tariff set lines and all that. And the uncertainty is not healthy for the economy, especially when you look at the political picture. So as you can see in this chart, growth is low from an outcasting perspective. Inflation is not coming up. So we have inflation from the UK this week as well.

29:01I think it will look very soft. By the way, let me disclaim that I was wrong on the US inflation looking soft last week. But anyway, bond yields went out. And yeah, I think that kind of sums it up on the UK right now. It's one of the few places where I don't see the momentum. Look at the traded momentum in Europe right now. Oh, sorry. I should say the European Union. I keep forgetting that they're a part of Europe now that they've left the union. But pardon to my friends in the UK. But the momentum in European stocks overall, if you set the UK aside, is incredibly strong right now. But the case is not as solid in the UK by any means.