Deep Dive
Shownotes Transcript
Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the host and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. All right. Welcome to the Saxo Market Call. It is Monday, 12th of May, 2025. And boy, it's
The trade talk's not disappointing. The folks that wanted things to come up roses because we got the news, of course, this morning, unless you've been living under a rock, that we will see the two sides climbing down from the crazy tariff levels above 100%, and we'll have the U.S. at 30% and China at 10%.
I'm not sure of the status of things like those steel and aluminum ones are, if that's an addition. So if those stack, in other words, the 25% plus the 30%, it doesn't really matter. What matters now is that markets are seeing this as a direction towards detente, that on the ground we won't see a total seizure of trade. I mean, that reality, I think, was thoroughly priced in, but the markets perhaps trying to
to move towards something called 50 to 60 percent Trump mentioning 80 percent that was seen over the brief risk off flurry on Friday and then we end where we are now but let's let's uh you know recall where we are which is it's a 90-day a ceasefire if you will as every says this is a ceasefire uh to allow both sides to rearm uh well time will tell if that's the case but certainly we need to be a little bit cautious and in one regard and only I would argue
We just got this news. This is about as good as the news gets, I think, on the trade front for now, unless the US and Europe suddenly convene and decide just we're not going to do tariffs at all or something. So at the point of maximum good news, you wonder if there's actually could be some backfillings and questioning, well, what's the long-term lay of the land? Is this simply a change of direction, or is it just a change of pace? And I would argue it's a change of pace.
Yes, indeed. And we just have to remind ourselves, looking at where markets are today, that we are back to levels seen back in March, I believe, in the stock market. So we fully priced out the Liberation Day speeds and all the tariffs that are still in place around the world and its potential impact. So
So, yeah, perhaps let's see it. But initially a lot of exuberance and momentum-driven buying frenzy taking place. But as you say, John, probably also a good time just to take it all with a bit of a pinch of salt here. Yeah, and I think as well we have – what does it mean 90 days? What does it give both sides time to do? From the U.S. angle, I'm not so sure I know, but certainly from the Chinese angle, you're seeing quite a –
Quite a blitz of diplomacy around the world. You have Lula being invited to Beijing. He'll be spending five days there. Cozing up to China, there's a very important commodity relationship those two countries have. Is there this so-called Monroe Doctrine that are – the return of the Monroe Doctrine, which many have talked about?
And if so, Brazil is going to be in the crosshairs of the Trump administration very soon. And we have to remember or to take a look at some of the specifics in the UK-US trade deal, which are hinting at where all of this is going and is not towards the place where I think the markets feel like it's going, which is going away. I don't think this is going away. And if we look at that UK-US trade deal, there are things like –
quote, strengthening the alignment and collaboration on economic security. What does that mean? That means who are we trading with and how secure are we from other countries? Read China.
Coordinating efforts to address, quote, non-market policies of third countries. Who are those third countries, we wonder. Rules of origin provisions. Basically, this is to prevent transshipment. I don't think the U.K. was ever going to be a huge transshipment country, but it's certainly going to be something that's looked at in Southeast Asian countries vis-a-vis their trade deals with the U.S.,
And for sensitive areas, sensitive goods, quotas and tracking, like, for example, steel and aluminum to prevent dumping, et cetera. So shortly put, there's a lot to wait and see here. And 90 days is an awful long time for the market. We did get a maximum dose of good news, better news than, of course, we were anticipating, but certainly than the market was anticipating. And so
What do we do? What do we say? What do you know? Where do we go next? Well, the thing is to first step is to see how today closes in the US, for example, on the equity markets. I mean, we're up 160 points on the S&P just before we stepped in here to record this, which puts us well above the 200 day moving average there.
The NASDAQ 100 way, way above the 200-day moving average, too. So let's see how this session performs. Is it a bit of a sell the fact once the cash session arrives, or do we see some follow-through action? That's step number one. If we look at crypto as a leading indicator, which it kind of has been of late, really just hanging in there with a solid bid, even through some of the back and forth in the equity market,
It's not that terribly impressed. I don't know how loud of a signal that is, but I just found it interesting that it kind of flatlined since the weekend and didn't get any additional upside on the signal.
on the trade deal announcement. And gold has been at the epicenter of this as well. We're nearly touching back to that 3,200 lows so far today. That's obviously a big level. What else are you looking at in terms of gold and maybe even correlation with other things that are going on here? Well, it's most certainly a day where we are a continuation of a period here where we've seen some of the growth-dependent commodities starting to recover.
We had the UK trade deal last week, but already the announcement that they were going to meet this weekend in Geneva, China, and the US also helped sentiment. So right now, today, as you said, John, we're holding just above 3,200 right now in gold. We have been drifting lower. Actually, not today. We've been falling quite heavily. We're down 3.3%. And if there ever was a time where profit-taking would happen,
would be relevant or could have a chance. It's really now with the tension easing, also geopolitical. We got the Iran-Pakistan deal or ceasefire we seem to be holding. We got potential for talks between Ukraine and Russia. That's also something we need to keep a close eye on this week. So all in all, basically just reducing the appetite for safe havens at this point in time.
Adding to that the dollar, which has strengthened, and yields, which are moving higher. So all in all, let's see how gold plays out. We do know that it's clear from the data where if you look at some of the hedge funds, they continue to sell gold. They've been selling for many weeks now. Their net long is down to the lowest level in 14 months.
So they've really been selling into this latest peak and continue to sell now as market revert lowers. So they are looking for a deeper correction than what we currently found.
But the other markets, the pro-cyclicals, as I mentioned, is most certainly the energy sector. We now have, within the last week, received a double boost to energy. Last week, there was worries about high-cost producers having to slow down their production, given the current low levels. And now we have the demand side, which perhaps is showing China stabilizing
And that's all leading to a higher price. So Brent crude and doubletie up 10% within the last week. So really leading the gains across the commodity space, which is, if we look at one of the leading indices, we're up 2% on the last week, 6% on the year. So still some respectable gains there. So yeah, it's...
The question is how much further we can – how much more we're going to price in at this stage. Yeah, and also the issue that it's really the May data cycle is really one of the first monthly data cycles. It's a little bit clean of the tariffs in May and June. So, yeah, looking forward, maybe the narrative is stolen back by what's the state of the U.S. economy, for example. And on that note, we have inflation up tomorrow and retail sales later this week. But given some of that hurry at buying we saw and things like iPhones, et cetera,
I'm thinking it's really the full May data cycle we're going to start to watch to get a better read on the economy. So you mentioned on gold, you pointed to the dollar, and I forgot to mention some levels. So that 1.12 area in euro is simply not holding to say the least. We crashed down even through 1.11. As I'm speaking, there was a 1.1084 low. I've touted 1.1050 as a really key technical area in euro versus the U.S. dollar.
If that fails, it's starting to look a bit ugly below that. 110 would be some last-ditch sort of psychological level. And below that, we're talking even down into the 108s type area and even a little bit further below that.
before we're finding meaningful chart areas of interest. On dollar-yen, we've really blasted through that 146.55 area. That was a prior low in March. Of course, the combination of GAGA risk appetite and rates going up in the U.S., well, it's pretty modest stuff, three, four basis points. But I think it's positioning, which is really hurting there as well. And we're seeing a squeeze to, we've been above 148 as I'm speaking. Huge, huge levels, though, 150-ish.
psychologically, and even before we get there, there's a 200-day moving average coming in. I would say to be getting up into those levels and certainly sustaining those levels would require something more meaningfully on the U.S. 10-year yield front to the upside. And on that very subject, I suspect there's a pretty hard ceiling somewhere above 450 basis points, so only five or six basis points more
Between there, maybe 4.75%, maybe 5% at the most, where at some point you'll see the U.S. Treasury moving to keep those yields down. The first step that many are naming there would be these –
a supplementary leverage ratio, rules around U.S. treasuries, which would allow banks to hold far more U.S. treasuries without any kind of penalizing their core capital requirements. That would allow them to hold far more and would be one of the first tools that they might reach towards. Getting a bit ahead of ourselves on that front, but just to be aware of that.
And then just in the Danish market, seeing the impact of things like this weekend's announcement, you also have Trump saying he's going to do executive orders to get down U.S. drug prices, some saying 30 to 80 percent because he would match those prices to whatever the drug companies are selling them to, to the cheapest levels versus whatever country. So –
Can he do this and can he do it with executive order? Certainly a company like Novo Nordisk, the huge Danish company that produces diabetes and anti-obesity or obesity treatments, impacted by that. And then on the trade side, mask having a very strong opening. Yeah, they jumped almost 10% on the opening. And that is really what these companies, the kind of news that they need because we are –
watching the data showing how shipments towards the U.S. right now is down and how some of these container ships are carrying a lower load than they normally do. So the price there has been under pressure for a while. So most certainly this is giving the market a bit of a boost. Yeah. All right. This is where things stand as of Monday around lunchtime. Let's see where they stand when we're back with the next Saxo Market Call.