Trump’s Economic Agenda | Andreas Steno ft Mikkel Rosenvold | Macro Mondays

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2:26Hello all there, welcome to another edition of Macro Mondays. My name is Miguel Rosvald, you're your show host, and also as usual, I'm joined by you, Andreas. Welcome to the show. Hey, Miguel. Andreas, we're getting close to that time of year when us Europeans take four to six weeks of vacation and let the Americans work. Are you ready for vacation soon? Well, I think we've had a very decent first six months of the year. It's been volatile as hell, but we've managed that pretty well. And I'm very thankful that we reiterated the message through April that we were going to see some results from the trade negotiations.

3:08We would also see some U-turns. We were pretty clear around that. And we also found the weak dollar and financial conditions to be sort of a precursor of what's been going on through May and June. We've actually had pretty solid markets. And I kind of expect them to continue into July, even though we have a lot of stuff to worry about, given that this tariff deadline is upcoming on July 9th. But it's one of those classic walls of worries, right? You know, I've had plenty of discussions with Hedge Funds the past week or so on whether to worry about this deadline. And Friday, late in the session, we obviously got something to worry about with Trump threatening Canada.

3:49but all of a sudden Monday morning it was actually good news. Maybe I'll ask you to quickly give us a brief of what happened with Canada. Absolutely. Let's start there, Andreas, because my gut reaction was that this should be negative for markets and uncertainty over the trade deals, but it seems like we can just have a headline up here that Trump has gotten the reaction that he wanted, I guess, which was to have Canada rescind the digital services tax, which should be very, very, very positive. for big tech out of the US. So do you think this is what he was aiming for? And how do you see this fit into the overall trade deadline as we approach that?

4:27So, you know, this implementation of the digital services tax had nothing to do with the ongoing trade negotiations, basically, because it was agreed upon roughly a year ago with the implementation date, July 1st. So I think at some point someone noticed Trump, hey, they're going to implement this digital services tax, even though it was agreed upon way before your presidency. A couple of days from now, why don't we try and put some pressure on them to force an outcome? And hey, here we are. First of all, this obviously matters for the trade relationship between the Max 7s and Canada. I think we're talking ballpark between one and a half and two billion dollars a year that they're rescinding in terms of taxation on these big tech companies.

5:12and on top of that it sends a crystal clear signal to for example the european union and other trade partners don't go down this road the european union has been mulling something similar to this quite a while it's been a part of the whole notion that europe would try to repatriate digital infrastructure and stuff like that but i i think this is one of the bigger results from Trump's negotiation strategy, because it's so important to these big companies in the US that they're not faced with extra charges everywhere they go around the globe. And right now, at least if I were negotiating with Trump, I wouldn't dare to add digital taxation to the mix, because you basically know his reaction function by now.

6:00He'll just try and break your neck. Absolutely. Well, Andres, we're going to dive much more into the Trump deadlines that we're approaching here in early July, what they might be for markets and our outlook for the summer. Before we dive into all that, remember that this is a sneak peek into all the research that we publish at Real Vision, so sign up for the Pro Cheer membership for much more of this, much more in-depth. We try to bring both our hot takes, our best charts and a couple of laughs into this show, but you should remember that both our trade ideas and our jokes might be Sometimes it may be good, sometimes it may be shit.

6:40I don't know about our jokes, but at least our traits have sort of overall been slightly more good than shit. But anyway, we'll move on from this address. Let's start with the laugh of the week, the meme of the week. I think this sets the tone for what's going on right now. We've all been talking about Doge, all been excited about that project. Talked about how, and now Elon is out, it seems. It seems like Doge is out completely and it's all about the big, beautiful bill. Somehow, this took me back to some of the shows we did just around the inauguration of Donald Trump, where the message was, we're entering a gold mage for America.

7:20All steam ahead, full steam ahead, firing on all cylinders. Then we sort of deviated that a little bit. It seemed like with the liberation day and it's going to hurt that entire narrative. But now we're back to the big, beautiful bill train. How do you see this, Andreas? You know, obviously, we don't know whether the Big Beautiful Bill will pass yet, but it seems like they're approaching some sort of inflation point or conclusion already here later this Monday. And in my opinion, the alterations that we've seen to the Big Beautiful Bill all point in the same direction that they want to stimulate now.

8:03and the spending cuts included in the big beautiful bill are going to be implemented say from 2027 and onwards and this is a classic political brinkmanship needed to convince people to vote for it now say okay we all the good stuff we have that right now and we'll save the bad stuff for later and it goes hand in hand with one of the hot takes of the week namely what Don tweeted yesterday I think we have it on for all cost-cutting Republicans of which I'm one remember you still have to get re-elected and that simple sentence is basically framing the exact content of this big beautiful bill the congressional budget office, which should be a bipartisan or objective budget office, laid forward their calculations on the latest version of the big, beautiful bill yesterday.

9:06And we have that on page seven. We've borrowed that from a Twitter profile and I've been through the numbers. They match exactly this. And as you can see, the stimulative parts, everything above zero, They're very front-loaded, and the way you're paying for this bill is very back-loaded. In my opinion, and trust me, I've seen many examples of this, especially in Southern Europe, is that the financing here is pure uptakes. because by the time you need to implement these spending cuts without prolonging the stimulus, the Congress at the time will be incentivized to re-strike the deal. So I'm pretty certain that the market will see this as highly stimulative.

9:58And it comes on top of everything that the Federal Reserve said last week, which basically pointed in the direction of the Federal Reserve being much more competitive. so for what it's worth right now at least if this bill passes Congress which I consider increasingly likely especially due to a few alterations to Trump's strategy on how to get these less big spenders from the party to vote for the deal the bottom line is this is stimulus it is going to be a year ahead where we're going to fire on all cylinders and they're going to indebt the US Treasury even more. Yes. And the strategy in jazz, as we've talked before here, is that, okay, we had some savings with those.

10:48Okay, we're getting some revenue from tariffs. But the strategy now is to outgrow the deficit, if there even is a strategy, it seems to be. And that obviously has huge implications on markets here. There is sort of almost a political momentum to this because you see this all the time in the US, I think. And just as a side note here, it makes me very, very concerned about the prospect of EU euro bonds being issued because once you start allowing an institution to issue that, there's no going back. That's my thing on this. It's very, very, very hard for the US Congress. Also because most of them are getting elected every second year in the House.

11:28it's very, very hard to plan much further ahead to make the savings in front of the spending. So yeah, hugely, yeah. This is exactly why you've seen both financial media, but also many hundreds within the macro space labeling the federal government Leviathan over the past years, because it is so incredibly difficult to stop the train due to how politicians are incentivized. I perfectly share your sentiment related to EU bonds. That's also why we vote against it every time we get the chance here in Denmark because we're actually one of the few countries paying for it. And I guess it's a similar dynamic in the US.

12:20A lot of people are tired of this, but by the end of the day, stimulus is nice, right? And my own thinking, basically from the pandemic and onwards, is that you've seen such a range of new tools being implemented in the toolbox. Take the example of direct transfers, tax credits, right, left, and center. I kind of labeled it Opranomics at the time, right? Everyone got a bailout. You know, you get a car, you get a car, you get a car, you get a car. And it still feels that way. We had an administration here actually campaigning on something different, but it is so incredibly difficult to actually implement.

13:07And that's why I think this is an honest U-turn by Scott Messon and Trump. We cannot find a way to cut our way through this. We need to grow. So, and I actually consider that strategy better than the spending cuts because spending cuts, you're never going to get those through anyway. So ultimately, they're going to be saved by AI, activity gains and all of that, which is basically also the view that Elon Musk has now taken, right? You cannot doge your way out of this.

13:54Thank you.

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14:53We brought along this chart on inflation to growth to prices. So surely this adds to the message we've already been through about the big, beautiful bill being stimulated to the economy. Yeah, it does. And the big question obviously now is whether this will be very inflationary in a couple of quarters from now. But the backdrop we have as we speak is superb for equities. Let me just reiterate that. And I think that still goes against the prevailing consensus in many ways because a lot of people have remained hesitant to buy into this rally because of the July 9th deadlines, because of the geopolitical mess in the Middle East and all of that.

15:38We kept reiterating that this wall of worries surrounding Iran was one you had to bet against. And I think the wall of worry surrounding terrorists is one you have to bet against as well because we have a load of positive news upcoming simply because of the reopening of the global trade playing field. There is no longer an embargo de facto in place versus China. We've seen shipping data and shipping volumes rebound. That is something that will slightly, slowly but surely, sorry, show up during the month of July in data. we've had very benign inflation prints we got a very benign inflation print from germany this morning again still the third biggest economy worldwide as far as i remember right so inflation data from germany the u.s more or less no matter where you look even japan has has been incredibly benign over these three months since the trade war started and that has been a surprise to many and that's why the market is not positioned for it when inflation is benign and growth is recovering at the same time, you have basically what you typically label a Goldilocks scenario, right?

16:44And it sounds odd to label this as a Goldilocks scenario, but until we see tariffs feeding through to consumer prices, which will take a while, maybe we'll get slightly higher prices this month, but it's nothing to worry about now. It's a superb window of opportunity in many ways. and I still think July will be a great month. And this comes on top of the incredible debasement that is ongoing on the dollar right now and raised to the dollar, especially if we get a new Fed chairman willing to back up this agenda. I'll get back to a few details around how the Federal Reserve already started playing ball with Trump's agenda last week.

17:27But speaking about playing ball, Michael, Trump and Lizzie Graham, they play gold. and apparently it yielded some results, you know. Yeah, you know, I think it kind of feels like Trump is trying to wrap up a bunch of stuff and then probably going on for some golf trips. He's still playing golf already. That's how he's conducting much of his business, obviously. I finally thought yesterday when we heard that Lindsey Graham's Russia sanctions bill was going to be passed, that, okay, now we've seen the Trump U-turn on Russia. Now he's turning on the screws. is going to push for increased sanctions on Russia to sort of force them to negotiate.

18:02Then today we had, and I know it's hardly visible on the right here, but we had rumors that the Department of the Treasury are lifting sanctions on a number of Russian banks when it comes to uranium transactions, it seems. So to be quite honest, Andreas, I had a whole theory planned about how Trump has now entered a new phase of this relationship with Russia. I don't know. It could also be that they're lifting sanctions on some parts and increasing sanctions on other stuff. I don't know. It's very, very hard to say. It's clear that they're using this as a way of getting the big, beautiful bill passed.

18:45But how this is going to materialize, very, very tough to say. So nothing to adjust your portfolio after right now, but something to keep your mind on. I have a few points to make there, Mikkel, because first of all, remember that Graham kind of admitted that this is a watered-down version that will allow Donald Trump to add secondary tariffs on countries buying, for example, oil from Russia. But it's not by design something that he's forced to do. So it just gives him the option. It adds to his toolbox, right? I think that's a really good addition to his toolbox ahead of these negotiations. And therefore, I support the bill given how it looks now.

19:23Now, it doesn't necessarily mean that Trump, like, say, on July 15th, will impose bizarre tariffs on India and China, because those are basically the countries in question here. They buy all the oil from Russia. On top of that, I actually think it's a clever move, what you see on the right-hand side of the slide, which is showed on uranium, because it is one of the very few things that the U.S. still buys from Russia, right? so they had to get rid of that to not look stupid if they started adding energy-like sanctions on countries buying energy from that. Yeah, and to me I mean, we already talked about uranium becoming part of this part of new actions from Russia and this could be lifted, but this is also evidence to the nuclear bet that we've been discussing and having on our real vision portfolio we don't want to give too much of that away, but I think this is just further evidence that the Trump administration are very, very serious at pushing in that direction.

20:19Obviously, you need some uranium to fuel power plants. So, yeah, interesting to have addressed. Should we just touch on oil? It seems like oil is fine, a new level. Quite a low level should be benign for inflation pressures in the West. Do you see any? It seems like oil is even really reacting to production decisions from OPEC or anymore. So, and, you know, the difference was kind of whether the oil market would respond to this Lindsay Graham bill suddenly having a chance of passing Congress. And now it just, you know, obviously we had the massive spike due to Iran and we have the massive retracement due to Iran being, quote unquote, sold.

21:03And now it basically seems like the patient is dead, right? The oil is moving nowhere, which is kind of interesting. and I think we're trading very fair right now at close to fair values. The market is oversupplied as long as Iran is allowed to sell and as long as Russia is allowed to sell. Russia is obviously not providing a lot of energy to the West right now, but they're selling their energy to India, China, you name it. And as long as they can do that, we're in a massively oversupplied state of energy affairs. But it's a major deal if Trump imposes tariffs on countries buying energy from Russia, because they will obviously have to seek for solutions elsewhere, at least in the interim.

21:50So let's see. We're obviously at least a week, maybe even two weeks away from this grand bill passed in Congress, and they need the big, beautiful bill to be passed first. So I don't think it's a market topic for here and now. But now oil is settled, in a sense, and we're close to fair value and volatility is low. I think it's much, much more underappreciated what happened Wednesday last week, Michael. Yeah, I think this is on the press release from the Fed. So, yeah, and thank you for bringing that up. Because, you know, Wednesday last week, the Fed hosted, if not an emergency meeting, then at least an extraordinary meeting to discuss the so-called supplementary leverage ratio.

22:35And the suggestion, which is now in a hearing period, is to lower that supplementary leverage ratio for both GSEPs, basically meaning systemically important banks, but also for their sub-companies. And the whole purpose of that exercise is obviously to add liquidity to the system to ensure that treasury trading runs smoothly. But they could have just alleviated the stress in treasury markets by excluding treasuries from the supplementary leverage ratio. But instead, they suggested to lower that ratio all in one. And the simple way of understanding what that means basically is that a bank like J.B.

23:19Morgan or Citibank needs to set fewer dollars aside when they provide you a loan, Nicole. And that is of the utmost relevance because it basically means that it frees up dollars that are currently frozen. They're set aside and they're frozen in the system. and they cannot move. When you free up that capital, as soon as someone demands credit, it will be a lot easier. So this is clearly an easing of credit conditions, but it is also something that will lead to more dollars flushing around in the system. And I have a chart on the bank credit developments over the past 10 years or so. And my back of the envelope calculation on this SLR belief of the capital ratios suggests that we're talking at least a couple of hundred billion.

24:14Just on the surface, you could obviously have multiply effects out of this. So at least a couple of hundred billion worth of dollar liquidity will be added if this suggestion goes through, just as it looks. And this is a way of contextualizing it. It's a lot. And it just goes to show that credit is growing. so we're talking maybe a couple of months of peak QE just my private banks instead of the federal reserve and this is the first sign that the federal reserve is actually willing to almost robust damn the strategy from god mess and then donald trump suppose that they add a new fed chairman willing to cut interest rates to one to two percent which trump asked for yesterday in the Fox interview.

25:02And on top of that, a Fed chair that is willing to maybe even, at least in a light scaled way, underpin the yield curve all the way out. Some sort of light control of the curve. That would be big news because it's probably not what the economy needs right now. And I'm getting the vibe that we're slowly but surely approaching the point where a lot of members of the committee are basically parading, ticketing for that job, right? Obviously, we've had some of the old school members out saying that they're not going to just support this out of thin air. But we have plenty of members supporting it now, also even vocally, Chris Waller being the most vocal.

25:53So I think what we're seeing right now is some sort of faction fight that is slowly, virtually brewing. with several members being more and more vocal, and I think this will intensify over the summer, in an attempt to get the nod, basically, from Trump and Besson. And, you know, we've seen this movie before, Michael. Not least in Japan back in 2012, 2013. Yeah, that's interesting, because it seems like Trump is getting much of what he wants if we assume that the bill gets passed and he's slowly getting what he wants out of the Fed. You pulled up a very, very interesting historical comparison here.

26:28Abenomics out of Japan. Why is this comparable? So late 2012, Shinzo Aben won the election on a platform of stimulating the Japanese economy via monetary stimulus, via structural reform, but also via fiscal stimulus, right? And as most people already knew at the time, the Japanese budget was running hot. They paid too much for their debt. They already had a load of debt. So stimulating in that kind of backdrop is difficult without a central bank that supports it. It's the exact same thing we've seen over the past quarter or so, that if the Federal Reserve is not willing to back a big spending strategy, it's difficult when you're already running a debt to GDP of more than 100%, as they also did in Japan.

27:24I think they're at 180 % or something like that now. I've lost count, basically. But the point here is that if the central bank is forced or, at least to some extent, incentivized to back up a big spending plan when debt loads are already high and the currency is already under pressure, we may get a very, very, very swift depreciation of the currency underlying it. So this is the dollar versus the Japanese yen in the six, seven months that followed this Abe election. He named the new governor of Bangor, Japan, early in 2013. That governor, already after the election, we had speculation around it.

28:05That's what we see right now in the dollar. The dollar weakens on a running basis. I think we have 11 days in a row with a stronger euro versus dollar. Very rarely see. on speculation that Trump will do something like this. Once a governor is named, even though it could be ahead of the forward start, and that governor starts talking about, okay, we need to print some more dollars to underpin the fiscal strategy. You could see a very, very swift move in the dollar. I'm talking 15, 20, 25%. And this is obviously speculative because I don't know who's getting the nod, But I think this is within the realm of realistic scenarios now.

28:44And it wasn't six months ago. So it's something that you need to consider when planning your portfolio, when taking decisions in a business, that this is a potential scenario now. It's feasible that we end up there. Trombonomics emulating what happened in Japan or what happened in Turkey to a certain extent. And there are pros and cons of doing this. But one of the clear-cut implications is that the currency will likely weaken a lot. And this is not the same as saying that the dollar is done as a reserve currency. It's not the same as saying that the dollar will not be used in global trade. I find those views completely out of sync with what's real.