Paging the next catalyst, please!
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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. It is Tuesday, 10th of June, 2025.

Coming back after our nice long holiday weekend, the last of the official ones here in Denmark, at least for quite some time. And we saw on Friday that as we covered on the Friday podcast, and by the way, we have an accompanying slide deck to that podcast. Feel free to go back, of course, and look at that. And you can see the calendar with this week's economic data highlights, etc.,

So that Musk-Trump-Tiff feud, blow up, whatever you want to call it, I think engineered a sell-off that seems to have been a one-off. So we had yet another sort of bearish candlestick, something that looked like it might be worth the bears sinking their teeth into and then just not resulting in anything, at least not so far. The Monday session, pretty muted, certainly not negative news.

We have the 6,000 level still in play in the S and P 500. NASDAQ 100 hasn't managed to, to head to new highs. Um,

A very, very muted session. I think it just speaks to a lot of widespread uncertainty. But we have at the same time, although it's uncertainty, it's also complacent uncertainty. So we have plenty of signs of pretty solid risk appetite elsewhere. Crypto is trying to have a go at the highs. We have in FX some fairly solid signs of carry trading. If you look at the Japanese yen towards the weekend of recent ranges and things like that.

EM currency is doing quite well. Dollar Mexican peso hitting new lows since I believe it was August of last year I noticed on the chart. And of course with the carry it would be even more so. So things like peso, yen quite popular and doing well.

But if you look around the edges, you know, I'll stick with FX for a moment. We have EuroYen tease the highs of the range. It's come back in. Sterling Yen has been looking at those highs of the range as well. But other, you know, classic risk sentiment barometers like Eurosuisse still bottled well up into the range. You'd have to see a very significant breakout of something like 0.94.

to suggest strong risk sentiment in the key, the big currencies. So risk on around the edges. And I guess looking at Friday's US jobs data, that was one of the key catalysts preventing us from dipping into risk off territory because the official report failed to confirm all that negative, the other negative data points throughout the week from the weekly claims to the ISM services, et cetera. So plus 139.

It wasn't exactly a positive report, a very slightly beat on the headline. We all know these payrolls numbers are very statistically massaged every month, and it's the revisions that start to count, to really count as the accumulate. And on that note, the two-month revision was minus 95K. So it really was nothing to write home about, but it just didn't confirm that bearish lean on the number going into it.

And as well, the household survey coming out unchanged at 4.2% as expected prevented any other sort of ugly twist there. And in the background, we know we have U.S.-China negotiations ongoing. Trump saying China is tough to deal with, the signals being that with China inviting Trump to China,

to China and him inviting China to, or Xi Jinping at least, to the U.S., we have a sense that this is going to drag out for a while. The latest news is that the U.S. may be interested in exchanging some concessions on chip design software and jet engine parts in efforts to get or unlock more supply of rare earths, which are strategically important, as we've discussed. So

Certainly worth following, but it just feels like the market doesn't really have its eyes on this unless something truly alarming develops. And I think essentially all the good news is already priced in. So to get further good news, you'd have to see some kind of catalyst like abandoning all the tariffs or something. And that's not forthcoming, I don't think.

What other news? What are the catalysts potentially out there? The big, beautiful bill? No way. It's going to be well into July and probably beyond before we get something there. Some House Republicans also backtracking on their interest in signing what they already signed.

We have the Fed's Michelle Bowman out with an interesting speech, and this is something to watch for the longer term. She has been appointed vice chair of the Fed and head of bank supervision and was out with quite a long speech. I linked to that speech or some takeaways from that speech in my FX Up to Date. If I remember, I'll put a link to that FX Update in the podcast description today.

Where she pulls out some things she's saying and basically the attitude being, look, we did a bit of overreach in the post-global financial crisis bank regulation. Some interesting references to unintended consequences of that regulation, which has pushed – I think the wording is something like pushed –

lot of the riskier type of activities out into unregulated areas and those unregulated areas are things like private equity and hedge funds and there's a bit of speculation in that space whether there's some kind of systemic risk that is developing there with with PE private equity that is ballooning to the private equity assets ballooning to something like 11 trillion dollars versus I think it was for about a decade ago and

So that's quite an expansion, and they've expanded into new areas as well. And by the way, on the U.S.-China trade talks, I came across a wonderful article. And, you know, hat tip to FT Alphaville. I forget to go back and check their lists more frequently. I should do it more frequently because they're often trawling around and find some really great commentary and news stories to cover.

There was a sub stack they linked to. I'm forgetting the name right now, but it's Ben Ansell, I think is the guy's name, where he talks about, and I think this is a great observation and it's a very well-written article, that we have this so-called taco trade, the Trump always chickens out trade, the idea that Trump puts up a wild, aggressive position and then just sort of what you can call it chickens out or he pulls it back when things start to escalate.

to get to, the reaction gets to be too negative. Well, he says, well, there may be the taco trade, but he talks about this sort of theory that Trump has himself mentioned, that there's this madman strategy to negotiations and dealmaking where you sort of indicate, or you have more leverage by indicating that you're willing to take a very crazy position.

And it sort of scares your counterpart perhaps into action is the thinking. But he says he dismisses this idea that Trump is really pursuing the madman strategy because he does put out the aggressive position. Maybe he chickens out. Maybe he doesn't. But then once the deal signs, he immediately abandons it. So he comes up with – Ben Ansell comes up with this idea that we're on to a tostada trade from the taco trade. If you don't know what a tostada is, it's basically a toasted –

corn tortilla, which you put toppings on and things. And Tostada in this case stands for Trump often signs, then abandons deals anyway. And I think it's a very clever comment and it leads, I think one to believe that, you know, if the U S has seen is totally unreliable and not worth signing deals with, could the risk actually be worse because they stake out these positions and the counterparty doesn't know what

the quality of what they're going to end up with anyway. So why agree to anything in the first place? It's an interesting idea and interesting to see where this, you know, what these deals, how they shape up and whether the U.S. is faithful to them. Because if not, then I think we have the risk of some pretty, you know, arbitrary practices on both sides. And then the forward lay of the landscape looks that much less sure.

All right, it feels like this is going to be a stream of consciousness podcast today. The thing I was trying to indicate at the top of the pod is that things feel quite uncertain, but so far it's not being expressed in any sort of negative way. But it does feel like market participants are at a loss for a catalyst. So we had the huge comeback in risk sentiment as those that were actively short got taken to the cleaners. The ongoing passive bid is still there.

It feels like a lot of the so-called smart money is still a bit on the sidelines, wondering what's going to happen next. And yeah, so what are we supposed to find in the way of catalysts? I think the best bet might be tomorrow's US CPI number if there's some kind of shock there. If there's not a shock, then we have to, of course, tread water and wait for the next thing. And John Authors, the great commentator and economist on

Bloomberg pointing out that this could be the first month because it's the May CPI data that we could get some tariff impact. Now, longer term,

There's very credible arguments that tariffs are not necessarily inflationary, but of course they do hit CPI readings. If the price of X does go up, it will hit that CPI reading, even though it could mean that there's substitution and it doesn't mean there's more supply of money going into the economy. It just means you're buying this instead of that. So very interesting to see if that is the case. Looking at what's expected, we are expected to head a little bit higher on the –

the year-on-year on the headline and the core tomorrow. So 2.5 for the headline from 2.3 in April and 2.9 on the core versus 2.8 in April with the month-on-month readings 0.2 and 0.3 for the core respectively. So a big surprise is there, something that spikes yields after a little bit of a solid pickup and yields like, as you could say, on the Friday jobs report. Could be something that

I would suspect, would provide a negative reminder of where the treasury market is and yields are and something risk off into what looks like a pretty complacent market. But that's just a scenario, and it would require, of course, that we do get this little spike in inflation.

And I forgot to mention, actually, when I was doing my FX coverage, that the U.K. was out with some weak payrolls this morning, minus 109K for May. We saw the two-year losing steam to the tune of six basis points, or at least at one point it was this morning. Some of that reaction has come out of the market as I've come in here to record this podcast a bit later. But negative data there, and the U.K. is a little bit sensitive to that on the rate front because it is the highest yielding of the major currencies.

Okay, that just about does it for today. We have one data point we do have today. It's quite an early data point from the U.S., this NFIB, small business optimism. Pretty interesting one to track. So we had an absolute explosion higher in confidence when Trump was elected president. This is...

Clearly, you know, Trump voters that are small business owners enjoying the thought that we're going to see lower taxes, the potential probably from a small business owner's perspective in the U.S., the hope that they'll go lighter on the regulation related to employee health coverage, this kind of thing. But since exploding higher in the first couple months after that election,

after that Trump victory, we've seen an unwinding and unwinding and unwinding and steep fashion. And we're almost back to square. Uh,

from before he got elected. So it's just interesting to see that politicization of sentiment and that it's completely deflated now in the case of at least this data survey. So perhaps an interesting one for where real sentiment is that we get later today. Okay, that is a wrap for today. Stay safe out there, and we'll be back soon with the next Saxo Market Call.