Trump vs. China: What’s Next for Global Markets? - Macro Mondays ft. Andreas Steno Larsen & Mikkel Ronsevold

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1:29Thank you so much.

1:40Hello out there. Welcome to another edition of Macro Mondays, live to you on YouTube, Twitter, Real Vision, wherever you want to watch this, or if you're just listening in on the podcast afterwards. My name is Miguel Osmo. I'm your usual host. And with me today, of course as usual andres dino welcome to you andres a shaved version of much younger uh not much younger i don't know thankfully but uh you know um when i shaved this weekend um you know i went to the bathroom and then i got out again and my baby boy he was like who the fuck are you it took like two or three hours before he wanted to sit with me again um so yes it's a new it's a new look to say the least as long as your iphone recognizes you and you can open that i mean that's a great start.

2:27Andres, it's really busy time to the office. We're not here to advertise that, but we are opening our very own strategy today. Beginning trading today. How's the first day, Ben? Messy. I don't want to add to it. Absolutely. As I said, this is not a strategy. It's not an attempt to advertise it, but a disclaimer that we're doing our very own strategy now. We will be bringing in our knowledge and our findings from that, obviously. And to me, at least, it's the ultimate version of putting your money where your mouth is. You're putting your own money, my money, our investors' money where your mouth is.

3:03So that's where we're at now. That's the scary part of this, that I'm actually investing your money now, Michael. Because I guess the mood in the studio can turn really bad in a few weeks from now. Absolutely. It's everything I have almost. I haven't sold the house yet. But you need to in a couple of weeks. Yeah, I'll probably have to. So, Andreas, in this strategy, we're not trading crypto at all. That would have been a real shame if we started a month ago. But anyway, I just want to talk a little bit crypto to begin with. And it's not what you think because, I mean, Andreas, when we did the Pro Macro show with Ro last week, I kept asking you guys, are we entering monkey JPEG territory?

3:48And now I just found, I'm learning today, I just found that the floor price on the Bored Ape Yacht Club NFT collection is going through the roof right now. It's not 2022 levels at all. We were there actually in early 2024, so it's nothing. But is there anything to this? Are people struggling on where to place their money, trying to find new 200 % of weak bets? You know, you can take this as a hint that what I typically label esoteric risk-taking is potentially going through the roof now. I think we've seen the first signs of the attention span moving from Bitcoin to altcoins. And I guess this is a part of that journey.

4:34We've had plenty of questions over the past few weeks on whether this is the time to move from Bitcoin to Ethereum, for example, in your allocation. I think it is. Let me just disclaim that. And, you know, when we look at the developments, especially late last week, I think it was very interesting to see that flow started moving towards altcoins quite substantially also in ETFs, which is actually the first time we've ever seen it. I think we have a chart on it with the flows into the ETFs. Exactly. And this is the flow into the, the aggregate flow into Bitcoin ETFs versus Ethereum ETFs. And as you can see, the light blue bar here is from Friday.

5:19And we actually had a larger inflow to the Ethereum ETFs relative to the Bitcoin ETFs for the first time ever. I guess that's something to take notice of. And it rhymes with what we've discussed on this show and elsewhere. Maybe we're getting to that part of the cycle where we get risk-taking further out the risk curve, even in crypto space. And this is a good sign of it from a flow perspective as well. So I think it's something to bear in mind. And we typically see this when we get the first signs of an improving business cycle. And just as we went on air, the ISM Institute released its monthly report.

6:08Haven't seen the numbers in all honesty, but my best guess is that we're starting to see some signs beneath the hood that the business cycle is improving. Our medium term outlook on the business cycle is, especially when you look at manufacturing, is really positive. But there's a great divergence to discuss between services and manufacturing, and we'll get back to that today, Miguel. Absolutely. This might be a good time to point out that this is based on our analysis, our data models, of which we share a great deal with the Real Vision subscribers. You can get that on the Pro Macro tier. Among other things, you'll get access to our very new article series, What We Told Hedge Funds This Week.

6:46Very short and sweet title, but it tells you exactly what's underneath the hood. We collect all the most important points, charts, etc. that we tell hedge funds, the hedge fund clients that we have throughout the week. So go to the ProMacroTure to check that out. But remember, and we haven't had that for a couple of weeks, Andreas, that whatever we tell you on this show and what we write in our research, it might be... Sometimes it may be good, sometimes it may be shit. It might be, sometimes it may be good, sometimes it may be shit. That is our motto on this show. We're still trying to get it out there live because we don't have, sadly, generic atuso in the office here.

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8:09Not 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. I just want to, while we're at crypto obviously we try to be very, very short term and this is the short term outlook very, very interesting in the broader long term we had some early ideas of a Trump crypto plan I saw next some notions that of strategic stockpiling of bitcoins the issuing of stable coins pegged to the US dollar what do you make of this?

9:04I mean, we've talked about this before, whether the US government would get into actually buying and holding Bitcoins. Did you think that's realistic? Indeed. But I'm not sure that they will buy anything but Bitcoin. If you look at Trump's own holdings, I think he's much more into Ethereum, actually. But anyway, you know, that plan was made forward late last week. And it, you know, it included some interesting points, including sacking Gary Gensler. Gary Gensler, sorry. But, you know, it's crystal clear that they have a plan to include crypto as an important topic also from a legislative perspective.

9:40And, you know, for good and for bad, I think we can have lengthy discussions also with the audience of this podcast on whether it's a long-term good thing that DC becomes a lot more involved in this topic. I have mixed feelings about it, to be honest. But sure, if they build up a reserve of Bitcoins.

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11:02Should be bad news from a flow perspective, right? Yeah. That's very, very interesting, Andres. We have a great show for you out there today. We're going to talk a little bit about bonds, a little bit about China, a little bit about services and other good stuff. Where do you want to start, Andres? Can we talk about Honda Biden first? We can, absolutely. Getting a pardon from his old man? Yeah. So, you know, it actually caught me by surprise, to be honest. And, you know, I actually expected Trump to do it. You expected Trump to do it? Yes, because, you know, it would have been a very, very easy way for him to put all of those discussions around a hostile environment between the Democrats and the Republicans to bed.

11:44And my best guess is that Joe Biden would not allow Trump to do it. That was why he took the decision. Could be. Could be. So Trump told him, I'm going to do this? Okay. That's my best guess. Because otherwise, why now? Yeah, because it's his last chance to save his son. I mean, his son is probably going to get persecuted. Anyway, it's what you do when you're leaving office. You can get to do all these kind of things. One guy that's not leaving office anytime soon, Andreas, is Xi Jinping. Should we start talking a little bit about China? Because you had a very, very interesting chart. We've touched upon this briefly before.

12:23I'll just want to show you this chart. It seems like China is selling off gold or putting gold in the market. What are we looking at here? Yes, you can if you want to read this chart in that way. But this is the amount of gold unwarranted at the Shanghai Futures Exchange. So, you know, that amount is through the roof. And it's been like that through 2024. for. That obviously happened in conjunction with the gold trading activity picking up, largely speaking, across the board in China, but also across the board in BRICS countries. And, you know, we're two, three years into that new environment geopolitically where if you're a member of the so-called global south, you don't have any whatsoever guarantee that the US authorities will not seize your reserves, right?

13:23It happened to Russia. It happened to a lot of wealthy people in Russia. And as a consequence, right after that decision was taken, And obviously, if you're a part of the leadership in China, you had a meeting, okay, how do we deal with this sanction risk or this risk of getting our reserves seized, right? And one of the very easy ways of dealing with that is to buy physical gold, obviously, because you need boots on the ground to seize that. It's as short and sweet as that. So I think we need to see the message from Donald Trump over this weekend in light of this. He basically threatened with a 100 % tariff on BRICS countries if they moved away from the dollar in their reserves, basically.

14:22And one way of moving away from the dollar, at least de facto, is to use your dollars to buy physical gold, right? because you cannot seize that. You can seize a reserve portfolio of US treasuries, for example. 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.

15:08A couple of weeks ago, maybe 10 days ago, China issued its first sovereign bond in Saudi Arabia. And while it's largely symbolic, there is maybe an added layer to this from a geopolitical perspective. And you just have to explain this to me, Andreas. It was a dollar-based bond out of Jeddah. What does that even mean? It doesn't mean a whole lot, to be honest. But, you know, you can offer an offshore dollar bond in Saudi Arabia. So it's not traded onshore in China. But you could have chosen another offshore venue. It doesn't really matter whether it's Jeddah or not. I think it's largely symbolic that they want to, like, increase financial ties with Saudi Arabia.

15:52This is a way of ensuring that a few fees will reach Saudi Arabian banks, etc. But why dollar? Do they need dollars? Is that why? I mean, you know, it's early, early days. But this dollar bond was vastly oversubscribed. And my best guess is that China's trying, at least testing the waters, on whether they can create some sort of light U.S. Treasury proxy prone to fewer sanction risks. So if you're a, say you're a central bank in the global South and Brazil or, you know, Egypt or whatever, you can buy this Chinese dollar bond with fewer sanction risks attached to it. and you know ultimately i guess it depends on whether china from a credit perspective and from a credibility perspective is at as good a buy as the u.s but they've increased their ties substantially with this pool of global south countries over the past decade and And by issuing Chinese dollar bonds, they actually offer these countries an out if they would like to keep the dollar in their reserve, but dislike keeping them in US treasuries or in gold, for example.

17:17So I'm not fully sure how to read this yet, to be honest. But, you know, I find it very intriguing that at the same time as we saw this bond issuance in Saudi Arabia, we also started to see the gold momentum getting a little bit exhausted. And if this is a signal to BRICS countries to, you know, alter their strategy a little bit around gold relative to buying other dollar-denominated assets, it could be a massive trigger event for the gold trade. But I thought, when I read X, when I read all the conspiracy theories in there, everyone talks about China trying to make world trade happen in yuan, not in dollars.

17:57Not going to happen. No, no, that's essentially why I don't understand the Trump threat. But I think this is, you know, they're trying to figure out whether they can impact the dollar system from within here. And And they can obviously do so if they can turn themselves into some sort of lender of last resort of dollars for global South countries. Otherwise, they have to call up the World Bank or IMF or some of these institutions bringing a load of economists on a plane to tell you what to do after you've gotten the money, right? And China is a different beast in that regard, right? They don't tell you what to do.

18:39No. necessarily. Or at least, you know, as long as you pay them back and you provide them something in return, they can look through human rights and shit like that, right? Sorry, but... I mean, it could be seen as a nice addition to the Chinese subscription package, as I like to call it. You know, as a third world country, you can decide, or as a global south country, decide the US package. It gives you a lot of high-end weaponry, a lot of genes, a lot of democracy. You can call China. They have the cheap surveillance equipment that the U.S. can make. A lot of cheap energy now with Russia as well.

19:14They don't ask as many questions, and now if they can deliver both yuan and dollar lending. I mean, yeah, interesting to see this. I don't understand this Trump threat, though. I mean, it's really realistic that they're going to drop the dollar. How would that even look? Yeah. You know, it's not a short-term risk. and even with say two three years of complete geopolitical turbulence we're still trading in dollars right it's it's it's not like it's something that will end tomorrow and ultimately you need especially commodities to trade on another venue basically to get global trade redirected towards Chinese Yuans.

20:03You need a much more open capital market for that to ever be a considerable risk to the US. So look at it this way, Mikkel. The largest holder of reserves is probably the Chinese Central Bank itself, but other large official institutions around the world. And if you put Chinese Yuans in your reserve basket, in a central bank, you want a liquid and open market beneath that U1 market to really get involved, right? Because the last thing you want is to not be able to utilize those reserves in case needed. And if the market is illiquid and prone to capital restrictions and all that, it's not really going to be a good addition to your reserves portfolio.

20:56you um but still you know something happened the exact day where russian reserves were seized because it was a you know it was obviously a tail risk for for these global south countries that they could get their reserves seized by the u.s authorities but it probably wasn't considered that true a risk or clear a risk right and now it is a risk uh so you know we're at crossroads here and it seems like Trump is trying to sort of kick the can down the road on this question by threatening the BRICS countries. They don't have a credible or feasible alternative to the dollar as of now, but they were obviously stuck in discussions on creating a BRICS currency.

21:45It's not that we're anywhere near it. I mean, these guys are not even trading with each other in some sort of BRICS setup, right? So we're very far from it, but it's going to be a question for our lifetime. That's still my opinion. Yeah. Very interesting. Just quickly, Andreas, before we move on, I just want to touch upon the ruble. We heard a lot of talk late last week about the ruble collapsing. How big a deal is that to Russia? Because the way I see it, Russia, they're not importing a lot of consumer goods. As long as they're buying internally from their own production, what does it even mean?

22:25is it such a big deal? Well, you can actually argue that, you know, everything that they settle in foreign currency, such as some of their energy products, et cetera, it will actually make them quote unquote richer. But of course they are reliant on imports to some extent from China and other allies. But no, I mean, they're self-sufficient in everything you need, which is not the worst package if you're running a war. They've got vodka, caviar and energy. What more does a man need? Yeah, and they can settle a lot of their trade for weaponry out of North Korea with grain, etc.

23:12Essentially bartering grain for soldiers. That doesn't have to involve any currency. Okay, enough about currencies, Andreas. Do you want to talk equity positioning, bonds? What do you want to touch on? One, you know, we intend to be an actionable in this show and famous last words because I've, you know, been down this rapid hole before this year, but I... The gold trade? Yeah, yeah, yeah. You know, I think there's some value in trying to play the catch up in the manufacturing cycle in, for example, copper or silver versus gold here, which is a trade that has been bombed down this year. But if the manufacturing cycle picks up, there is a really good case in, for example, copper versus gold here.

24:02And yeah, let's see whether it will be my final attempt on this. Very interesting, Andreas. I just want to touch upon, you wrote in your Steno Signals article this week about how everyone expected the Trump administration to spill over into bond yields, but we haven't really seen that. Maybe let's pull up this chart of the growing divergence between bond yields and oil. What are you seeing in bond space right now in fixed income space? You know, outside of today, it's been one-way traffic down basically for a week in a row, which is exactly what we expected traded than what we basically forecasted for month and November and December.

24:51And why is that? You know, we had the debt ceiling upcoming in the US, meaning that the supply will be a little lower. We have big diversions, as you say, between energy commodities and bond prices, which is not something you typically see for a long while. I think there was this notion out there that Trump would drill, baby drill, but also be very inflationary at the same time. And one thing I've learned, and I've learned that almost for good, being part of that energy market in Europe since 2021, energy is life. You can sit here in Europe talking about putting up wind turbines and not having any local energy sources and all that, but it just doesn't work.

25:40It just doesn't work. And my point here is by bringing that up is, you know, that notion that you can get oil prices substantially down, nat gas prices substantially down, at the same time as bringing bond yields substantially up in some sort of inflationary mix, but with energy prices down, it just doesn't add up over time. Energy is life, energy is activity, including AI, you know, the price of electricity is AI. So if the price of net gas drops, the net gas turbine that you'll set up right next to your data center becomes cheaper. AI becomes cheaper. So energy is disinflation or lack of energy is inflation.

26:25We've also learned that. Yeah, sure, sure. So drill, baby, drill. Inflation expectations down ultimately. That's what I'm trying to say here. and they've been, you know, it's probably one of the few areas where all of the loyal soldiers of the Trump administration agree. They want to drill. And I think we should take that seriously. Absolutely. Andres, before we round off, let's just touch upon the macro outlook for the US. I like to pull this one up. This is our macro regime model for the US economy. We're seeing everything drop, both the likelihood of high growth, liquidity and inflation. How do you view the US macro regime right now?

27:14So, I mean, down, down, down, right?

27:18Inflation clearly accelerated after that 50 basis point cut back in September. It seems like we've peaked now. I think that's a crystal clear message from our model package. at the same time as we're starting to see some weakness, especially in services, you know, everything domestically based more or less, right, in the US. And it looks somewhat reminiscent of what happened back in April, May. And, you know, remember what ultimately happened over the course of the summer. We had a couple of nasty non-farm payroll reports. I think it's a big one, the one on Friday, the non-farm payrolls report, because everyone I talk to, they tell me, okay, Andreas, you should look past what happened last month.

28:08It was the Boeing strike. It was the weather, hurricanes, et cetera, leading to a bad non-farm payrolls report. But what if we don't rebound this Friday? Yeah. Then that notion is blown into smithereens, basically, in a split second. And that would be big, big, big, big thing for the bond market. And as I've said, you know, I actually consider it a pretty good thing that we get some bad data from the U.S. because central banks have been, you know, they've been a little hesitant adding liquidity here. And that's basically what we need to get the next leg higher in a lot of these liquidity-sensitive trades in crypto risk assets and all that.

28:50So ultimately, if you're, you know, if you want markets to rally, you need to cheer on a few bad labor market reports again. because otherwise they will turn too tight again. Yeah, because it seems to me here that if I was sitting at the Fed looking at this, it seemed to me I just touched upon the speeder and boom, I could have... Yeah, that was kind of the impression they got, right? So they need some sort of political excuse to continue easing now and maybe they'll get just exactly that from a service sector weakening a little bit here. Very interesting, Andres. Let's talk portfolio setup. What are the bottom line of all this, the grand trade ideas of this week?