Macro Mondays: Global Stimulus Signals

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1:29Thank you so much.

1:40Hello out there. Welcome to Macro Mondays. My name is Mikkel Olsenwald and we're sending to you live from Copenhagen from our studio here with me as usual. Andreas Dino, welcome to the show. Thanks Mikkel. Great Monday. Great Monday. Has been a lot of great stuff to talk about. We have a very, very packed script for today. So a lot of ground to cover, Andreas. We had our Christmas party on Friday. Thanks for that. It was a great one. Yep. I don't think we should mention what we talked about there. No need for that. A lot of good food. Let's just keep that, Andreas. It's been an eventful week and weekend, both in geopolitics.

2:20We're going to cover that a little bit. and then also in China as well, some news out of China, where we have a heavy week to look ahead to as well. So we've got a lot to cover, Andreas. Before we get to that, just a couple of teasers or announcements here. Tomorrow, you're doing your very first State of the Union show on Real Vision. Can you just put some words on to what can people expect? The same shit as here? Well, you know, the State of the Union, it kind of tells what we're going through, right? We look into the state of the macro union across all major markets, basically. So we look into China, we look into Europe, the US, Japan, et cetera.

3:03And then we conclude with a session on how to trade it, basically. And it is a model package driven show. So I'll go through our entire landscape of macro models from China to the US, you name it, all asset classes covered, including crypto. Great. Andres, we are about two months into Real Vision. I've been on the platform for about two months. And we've been there longer, but our articles as well. So remember, you can check out all the research that we publish in Real Vision with the Pro Macro package. We have both your weekly editorial. We have an article on what we told hedge funds this week, which I really like.

3:47And a lot of other stuff to cover. But of course, you can also watch some of it in this show. So that's where we'll head into right now, Andreas. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever. And Plus 500 Futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments. S &P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, forex, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere right from your phone. Deposit with a minimum of$100 and experience the fast, accessible futures trading you've been waiting for.

4:35See a trading opportunity? You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready? Not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytics tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading and futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. So, Andreas, I just wanted to start in Syria. Events unfolded very, very rapidly over the last 14 months.

5:16I think I counted it. We've had a civil war there for 13 years. Now an offensive by both the northern forces and the US-backed southern forces in 11 days, toppled the Assad regime. They've been in power for half a decade in Syria. Does this really matter for markets much, or is it more of a geopolitical thing? You know, oil is up today, but I'm not sure it's driven by the events unfolding in the Middle East over the weekend. You know, we've been talking about the potential geopolitical risk premium in energy markets from the conflict between Iran and Israel. And I guess you could argue that this is some sort of light proxy of that as well.

5:59But in my opinion, and pardon my French here, it seems like Iran is basically beheaded, if that's a way of putting it. You know, they've lost ground in Syria. They've lost ground in Lebanon. They've lost ground elsewhere, right? What's the next step for them? You know, they don't have any allies left, it seems like. You know, this is put in layman terms, right? But it seems like they're struggling right left and center. They are. They've had some serious fallout after the October 7th attack. They have managed to disrupt the Israel-Saudi normalization talks, which was a huge goal for them. But the costs of that have been very, very huge for Iran, obviously.

6:41That's also why we're seeing them sending signals that they would like to talk about a new nuclear deal with the US. I don't think that's going to happen with the new Trump administration. But they're trying to send some of those signals anyway. In any case, Andreas, I find this to be another sign that we are entering into an era of slightly less geopolitical risk. I might look like the stupidest man alive if something big happens next week, but that's the way I see it right now, essentially. So mostly good news. A very, very big refugee discussion entering over this. We have millions of Syrians, especially in Turkey, but also in Europe.

7:17We'll have to see where that heads. 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. In other news, Andreas, news out of China, bazooka news, essentially. We've talked about this channel, Fisker Bazooka. I see other people are beginning to use that term as well.

8:02So I saw this overview of the Chinese monetary policy. What's the change you're seeing right now? Okay, so the short version of this, this morning we got the news from the Chinese authorities, So basically the Politburo, the leadership of China, essentially, that they intend on embracing a so-called moderately loose monetary policy. And, you know, interest rates are close to zero in China. So you could argue that it's loose already. But it's a big thing when the Politburo admits to monetary policy being moderately loose. When was the last time we got exactly such a shift in rhetoric? It was on November 5th.

8:46in 2008. And for those of you who were in the game back in 2008, three days later, China basically posted the biggest fiscal package in China's history three days later. So I actually think, you know, I was very skeptical over the course of the autumn with all of these messages from China that we're considering fiscal stimulus, etc. I think this is big. This is it. It's probably it. So, you know, we know that they have a scheduled meeting this week among the leaders in China. We'll probably get some news already Tuesday, Wednesday. I don't think we have like an exact scheduled timing of a press release or something to look forward to.

9:35But this is big. It could be really, really big news. And, you know, how do we trade this, right? Or what's the trade here? You know, Chinese equities are up, I don't know, 7 % in dollar terms today, something like that. It's crazy. But commodities like copper, silver, etc., they've traded on the weak side for quite a few months in a row. I think they look very attractive from a risk-reward perspective. We've thankfully been in that copper trade into this. We made a lot of money on that this morning. But in any case, you know, I'm using a historical analogy here. They moderated this language three days ahead of the bazooka in 2008.

10:20Is it the same this time around? Who knows, right? But it could be potentially a very, very big move since they kind of set the scene for something big happening here. So bazookas aren't just reserved for Middle Eastern terror groups. They can also be used in China. I mean, it comes down to this a lot of the time when we try to analyze China. We do get numbers out of there. We try to make our own numbers on what's going on in China, but it very often comes down to some sort of headline poker we're trying to play here. But very, very interesting, very intriguing. We'll follow up on this next week.

10:53This might be a good time to give our usual disclaimer. We're going to run through a couple of cases you've made this week, but remember that all these trade ideas, all these suggestions, they may be... Sometimes it may be good, sometimes it may be shit. 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. With just a few clicks, you can register and start practicing with their free and unlimited demo. See a trading opportunity? You'll be able to trade it in just two clicks. Feel ready? You can move to real money with as little as$100 once your account is approved.

11:31And the great thing is that in addition to crypto, Plus500 gives you access to a wide range of instruments. S &P 500, NASDAQ, gas, and much more. explore equity indices energy metals forex and beyond with a simple and intuitive platform you could trade anytime anywhere experience the fast accessible futures trading you've been waiting for with plus 500 with over 20 years of experience plus 500 is your gateway to the markets visit us.plus500.com to learn more trading and futures involves the risk of loss and is not suitable for everyone not all applicants will qualify plus 500 it's trading with a plus

12:11Exactly. Our usual catchphrase from Gennaro Gattuso. Anyway, Andreas, I want to talk central banks. And I want to start out with perhaps one of the most deciding numbers on, one of the numbers most decisive for the U.S. rate policy, the non-farm payrolls for last week. More or less as you expected? Well, yeah. You know, it looked okay on the surface. It was not. So let me give you a few reasons why. If you look at the sort of median duration, for example, of unemployment, it's ticking up and it's ticking up rather fast, which is something you typically see towards the end of an employment cycle.

12:51And, you know, I've been banging the drum on upcoming weakness in labor markets for a few quarters. I've been mostly right on that, I think. It's not necessarily a big issue because unemployment slash employment lacks everything related to equity markets, crypto markets, etc. So basically, as a business owner, you take decisions on the back of outdated profit numbers because you don't really have anything else to take decisions based upon. So everything that we're seeing right now in labor markets is a result of the weakness we saw in profits back in 22-23. Why is this important for bond yields?

13:29Well, it's important because the Federal Reserve cares. and they've been searching for a political excuse, in my opinion, to cut interest rates in December. They've now gotten one. This is the pretext they needed perhaps. Yes, exactly. And the next question is whether they can cut in January as well. That's not priced in at all in case they get there. We're probably running at, say, 150K jobs added a month, which is insufficient to keep unemployment where it is. So to me, this is another confirmation that the Fed will keep cutting into what seems to be a very strong equity crypto market, right?

14:11So it's hard not to celebrate this. And, you know, the market went bananas after the release of this non-found payrolls report on Friday. Absolutely. One topic we've got a lot of questions on, And I should mention that you can post your questions live and we'll try and get around as many of them as possible during the show. But one question we've had a lot, Andreas, is the link between the central bank policy in Europe, UK, and the US. It seems to be that markets are splitting on the expectations. What's causing that and what do you expect over the next few months? Okay, let's start with what's in this chart.

14:53You know, we collect hedge fund data day in and day out on how they trade in various asset classes and how they position. And if you look at the light blue line here, which is the Uriber contract for December next year, markets are betting on Uriber futures to rise in price, meaning that one deals will have to drop, right? Or the Uriber interest rate will have to drop. While the opposite is the case for the SOFR interest rates of the dollar equivalent, right? The gap between the two is one of the most bizarre gaps I've ever seen, positioning-wise, meaning that markets are chasing interest rate cuts in Europe, but they're not chasing the interest rate cuts to the same extent in the US.

15:39And is this an issue? Well, it leaves the market very vulnerable to bad news from the US, right? Should we get a soft inflation report this week? Should we get some weak labor market data and all that? a lot of these hedge funds, and remember, they're very quickly in and out of trades, right? They could turn around in this view that dollar interest rates will have to go up relative to what's priced in right now. So the main purpose of showing this chart is that, well, I think there's still a very good case to bet on lower bond yields in the US, despite this bazooka from China. And, you know, if we add lower bond yields to a bazooka from China, oh boy it looks promising for the commodity landscape all of a sudden to some extent also okay-ish for the crypto landscape but you know good old industrial metals they look pretty solid from a risk-reward perspective here if I'm right very interesting Andreas let's return back to Europe here you wrote in your article on Sunday about a potential perhaps it's too much to say a comeback for Europe but some positive wins what are you seeing out of our current regime model here?

16:50Well, Europe is not doing as bad as feared. That's kind of the story I'm touring with right now. You know, we've been talking about the weakness in Europe through the autumn, and it's been mostly right to call for that weakness. But all of a sudden, when you get bond yields substantially down, which we've basically seen two, three quarters in a row in Europe, and you get to a stage where expectations are extremely low, then you can get a positive surprise. And the light blue line here basically measures whether growth will accelerate or decelerate from the current state. So, you know, we're currently modeling around 0 % growth or whatever in Germany, France and those countries.

17:34Yeah. So, you know, acceleration from there. Well, it's not like it's something worth popping the champagne for. But in any case, I think there are a couple of interesting equity cases in Europe, not least France, due to the clear link to the Chinese stimulus. You could also argue that Italy to some extent is linked to that. Look at it this way. Stimulus in China? Buy Prada, right? If you know what I mean. Or buy Mui Hennessy or whatever. That's the kind of stuff they buy. They don't want to buy the shit that they produce themselves. Maybe outside cars. That's the thing. No, but who's ever heard about a Chinese luxury brand?

18:18It depends how you define luxury, but absolutely. I mean, absolutely. I think the thing is that the Chinese government can mainly perhaps, or what we've seen so far is that they've mainly had the ability to increase spending within the upper echelons of the consumer class. And they buy the luxury brands. They don't buy cars because they've already got one. So to get the middle class out there spending more money, that's still the challenge for China. We also brought this chart. I just wanted to show, Andreas, on how macro hedge funds are positioned against the various indices. Do you think European equities are undervalued here?

19:00Yeah, to some extent, yes. You know, what I like about this setup currently is that we get this bazooka from China. No one's involved in the China trade compared to two months ago. as you can see here Hang Seng has got a minus in front of it meaning that the market is actually net short the market is net short CAC 40 so the French index the market is slightly short in IBEX in DAX etc. all of the big indices in Europe so you know pretty decent setup for some sort of retracement trade here I'm not saying that Europe is a good buy with a five year horizon but thankfully we can update you on a running basis in this show so for now yes I like the I like the idea of some sort of catch-up play for the rest of the world.

19:43Absolutely, Andres. We just got a question here on China. I just want to put it in here before we move on to Ethereum in the coming week. The GDX chart looks good this morning following the news out of China. Is the new low in? Yes, I think a new low is in. You can always discuss when to jump off the train, but it's certainly not yet, if I'm right, that this change of rhetoric on monetary policy is some sort of precursor to a larger fiscal package. You obviously run the risk that they show up with some sort of debt swap or another crappy design for their fiscal package later this week, but they'll have to deliver something.

20:25They're not stupid enough not to deliver something this week. I'm 100 % certain about that. And if they pull out the big guns, you know, Chinese equities look cheap. But I personally prefer to trade it via proxies such as copper, such as silver. They've got an extremely interesting setup. The market is net short. And you're not as prone to domestic risks as you are in, for example, in buying Shanghai stocks. So that would be my take on that. But yes, I think the China story has bottomed here, again, on a tactical basis. Okay, Andreas, let's take a little look at the week ahead because we have a bunch of interesting numbers and releases.

21:10First of all, the small to medium-sized businesses survey, the NFIB, coming in here. I saw this chart, which saw, to me, a quite mystifying gap opening up between actual earning and hiring plans. Does this mean that the businesses can't get the employees they want, or what do you see out of this? So, you know, this has been the big puzzle, basically a couple of years in a row, right? Why haven't we seen weaker labor market data given that the earnings cycle has not been super strong, actually, right? And I guess it relates to what happened during 21-22, right? You remember this very clearly as well, Mikkel.

21:51We ran a business together during this period. And it was kind of tricky to recruit for quite a long while, right? and wage expectations were through the roof at a point there. And to some extent still, we've actually seen some signs of wage expectations rising again now. So I guess this is a symptom of business owners stuck between a rock and a hard place when it comes to the whole labor market discussion because they currently have probably a decent amount of skilled employees that they would like to keep on board because it's tricky to get hold of them again if they need them in the future, right?

22:38Because, you know, they've kept more employees employed than they should given the earnings cycle. That's also the conclusion from this chart, right? What we don't know is whether the lead and lag between earnings and labor market numbers, whether that's pattern or has changed since 21. I think it's feasible that it has so that we get weaker labor market numbers in the next quarter or two. But yeah, we'll ultimately have to wait and see. My best guess is, yes, we get lower bond yields, we get weaker labor market numbers, but equities will thrive. Yeah. Because equities are forward-looking while decision makers are backward.

23:18Very fair point, Andreas. Just moving on, we've got the US CPI on Wednesday. Am I right there? Yes, yes, yes. You put up this chart of trade in inflation and the expectation from the CPI. What's your expectations for those numbers? You know, so I think the market consensus is around 0.3 % for the market or for the November inflation, sorry, out of the US. and we've seen roughly 0.3 % inflation for a while now again. And, you know, if you annualize that, like 12 times 0.3, we're getting clearly above 3%, right? Above 3.5 even, right? So we're not back to 2 % inflation in the US. That's the first conclusion.

24:10And, you know, this is the traded fixing. And for those of you who are not familiar with the concept, it's basically a market where market participants are trying to predict the actual month-over-month inflation increase. So 0.27 means, well, close to 0.3 % inflation again this month. For good and for bad, the Federal Reserve has basically accepted that they're not at 2 % and they cut anyway. And I've been saying this on Real Vision and elsewhere for a long while. Forget about that 2 % inflation target. It's not really something that they spent a lot of time on anymore. You know, I think there's a very, very simple rule to be made here.

24:52As long as we're below 4 % inflation, we're good. If we're above 4 % inflation, they'll flip again. And as long as we are arranging around, say, 0.25, 0.27 on the month, we're around that 3 % mark and they couldn't care less. Because, you know, they have a debt issue. Not necessarily the Federal Reserve, but the U.S. Treasury has got a debt issue. And, well, it's better than nothing to get a little inflation to sort of inflate that away, right? And if, you know, could we care less whether inflation is 2 % or 3 % as consumers? Now I'm talking for myself. You know, I could potentially receive a shitstorm by saying that.

25:37But I don't think it matters a whole lot. No, no, no, no. know, not in those levels. I mean, the huge levels we've seen, the crisis that has toppled governments, that's entirely different numbers we're talking. Plus five, yeah. Exactly, exactly. That's where it really begins to hurt. So it's a very good point. Might be looking at some new parameters for that. Let's just touch upon the ECB as well. Are we entering a time for easing of the monetary policy of the ECB, you think? Yeah, sure. I mean, they'll cut interest rates on Thursday. I think the big discussion, and that's also why you've brought this chart, I suppose, is whether they'll start adding liquidity at some point next year, because they've been very hell-bent in getting liquidity down in Europe.

26:25And this is the amount of deposits held by governments. So basically the equivalent of the so-called TGA in the US. And we're close to the lowest level seen in 10 years, meaning that the governments cannot add more liquidity. They've been adding and adding and adding to try and counter that effect from the ECB, and they cannot add anymore. So we're getting very close to some sort of pain threshold here in Europe. I also think that is what markets have sort of sniffed out, if you know what I mean, that they have to do something here to underpin the bond market. Let's assume that we get a new government in Germany setting this debt break aside, issuing a lot more in 25, 26.

27:09the ECB will have to play ball. Let's assume that we get stimulus out of France. You know, we don't really know where it ends up politically, but they're certainly not limiting the budget deficit with the new stock market. No, no, not at all. I think they threw out one budget and introduced another, which I was very surprised about. It seemed to be a lot more loose. But let's see where that all ends. So point in case, yes, there's a stimulus case for Europe as well. There's a stimulus case in China. there's a stimulus case in the US. Ultimately, what we need to watch out for is the 4 % inflation rule.

27:45We're not there. So for now, 4 % is the new 2%. Yeah, 4 % is, you know, and I can prove that empirically if you look back several decades. 4 % is the exact inflation number you need to be scared of. Because if you cross that line, central banks will have to do something. And we've seen that over and over historically. And that's bad news for markets, but we're not there. So for now, good news. And then on top of that, you know, stimulus in Europe, stimulus in China, stimulus in the US, stimulus. Everyone gets stimulus. This is Opranomics, right? You know, everyone gets a car. You get a car, you get a car, you get a car, you get a car.